News from May 16, 2016
Next week, Lawrence J. Christiano of the Northwestern University will be the speaker of the Quantitative Economic Colloquium. He will present his research paper "Does the New Keynesian Model Have a Uniqueness Problem?" which he wrote jointly with M. Eichenbaum and B. Johannsen on Wednesday, June 1, 12-1:15 pm at Deutsches Institut für Wirtschaftsforschung (DIW), Room `Schumpeter´, Mohrenstraße 58, 10117 Berlin.
This paper addresses whether non-uniqueness of equilibrium is a substantive problem for policy analysis in New-Keynesian (NK) models. There would be a substantive problem if there were no compelling way to select among different equilibria that give different answers to critical policy questions. In fact there is: stability-under-learning. We focus our analysis on the efficacy of fiscal policy when the economy is in the ZLB. We study a fully non-linear NK model with Calvo-pricing frictions and argue that the model has a unique stable-under-learning rational expectations equilibrium. In that equilibrium, the implications of the model for fiscal policy inherit all of the key properties of linearized NK models. We also find that for empirically plausible cases, linear approximations work quite well for assessing the size of the government spending multiplier and the drop in GDP that occurs in the ZLB.
For further information about the Quantitative Economic Colloquium and its program, please click here.