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Federal Reserve Bank of Chicago
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Quantitative Easing in Joseph's Egypt with Keynesian Producers
Jeffrey R. Campbell
Abstract

This paper considers monetary and fiscal policy when tangible assets can be accumulated after shocks that increase desired savings, like Joseph's biblical prophecy of seven fat years followed by seven lean years. The model’s flexible-price allocation mimics Joseph’s saving to smooth consumption. With nominal rigidities, monetary policy that eliminates liquidity traps leaves the economy vulnerable to confidence recessions with low consumption and investment. Josephean Quantitative Easing, a fiscal policy that purchases either obligations collateralized by tangible assets or the assets themselves, eliminates both liquidity traps and confidence recessions by putting a floor under future consumption. This requires no commitment to a time-inconsistent plan.


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Jeffrey R. Campbell, Quantitative Easing in Joseph's Egypt with Keynesian Producers, Federal Reserve Bank of Chicago, Working Paper Series WP-2014-15, 05 Nov 2014.
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Keywords: Zero Lower Bound; Liquidity Trap; Confidence Recession; Storage; Equilibrium Multiplicity; Competitive Devaluation
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