Working Paper

Some unpleasant properties of loglinearized solutions when the nominal rate is zero


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 labor 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;

Access Documents

File(s): File format is application/pdf https://www.atl.frb.org/-/media/Documents/research/publications/wp/2012/wp1205b.pdf?la=en
Description: Full text

Authors

Bibliographic Information

Provider: Federal Reserve Bank of Atlanta

Part of Series: FRB Atlanta Working Paper

Publication Date: 2015-11-01

Number: 2012-05

Pages: 69 pages