Some Unpleasant Properties of Loglinearized Solutions When the Nominal Rate is Zero

30 Pages Posted: 7 Oct 2015 Last revised: 9 Oct 2015

See all articles by R. Braun

R. Braun

Federal Reserve Bank of Atlanta

Lena Koerber

London School of Economics & Political Science (LSE)

Yuichiro Waki

University of Queensland - School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: September 25, 2015

Abstract

Does fiscal policy have large and qualitatively different effects on the economy when the nominal interest rate is zero? An emerging consensus in the New Keynesian (NK) literature is that the answer to this question is yes. Evidence presented here suggests that the NK model’s implications for fiscal policy at the zero bound may not be all that different from its implications for policy away from it. For a range of empirically relevant parameterizations, employment increases when the labour tax rate is cut and the government purchase multiplier is less than 1.05.

Keywords: Zero lower bound, fiscal policy, New Keynesian model

JEL Classification: E52, E62

Suggested Citation

Braun, R. and Koerber, Lena and Waki, Yuichiro, Some Unpleasant Properties of Loglinearized Solutions When the Nominal Rate is Zero (September 25, 2015). Bank of England Working Paper No. 553, Available at SSRN: https://ssrn.com/abstract=2669520 or http://dx.doi.org/10.2139/ssrn.2669520

R. Braun

Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

Lena Koerber (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Yuichiro Waki

University of Queensland - School of Economics ( email )

Brisbane, QLD 4072
Australia

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