scholarly journals A Behavioral New Keynesian Model

2020 ◽  
Vol 110 (8) ◽  
pp. 2271-2327 ◽  
Author(s):  
Xavier Gabaix
Keyword(s):  
Price Level ◽  
New Keynesian ◽  
New Keynesian Model ◽  
Rational Model ◽  
Fiscal Stimulus ◽  
Forward Guidance ◽  
Keynesian Model ◽  
Long Run ◽  
Short Run ◽  
Monetary And Fiscal Policy

This paper analyzes how bounded rationality affects monetary and fiscal policy via an empirically relevant enrichment of the New Keynesian model. It models agents’ partial myopia toward distant atypical events using a new microfounded “cognitive discounting” parameter. Compared to the rational model, (i) there is no forward guidance puzzle; (ii) the Taylor principle changes: with passive monetary policy but enough myopia equilibria are determinate and economies stable; (iii) the zero lower bound is much less costly; (iv) price-level targeting is not optimal; (v) fiscal stimulus is effective; (vi) the model is “ neo-Fisherian” in the long run, Keynesian in the short run. (JEL E12, E31, E43, E52, E62, E70)

scholarly journals THE MACROECONOMIC EFFECTS OF INTEREST ON RESERVES

2013 ◽  
Vol 18 (6) ◽  
pp. 1271-1312 ◽  
Author(s):  
Peter N. Ireland
Keyword(s):  
Monetary Authority ◽  
New Keynesian ◽  
New Keynesian Model ◽  
The Real ◽  
Keynesian Model ◽  
Long Run ◽  
Short Run ◽  
Macroeconomic Effects ◽  
The Way

This paper uses a New Keynesian model with banks and deposits to study the macroeconomic effects of policies that pay interest on reserves. Although their effects on output and inflation are small, these policies require major adjustments in the way that the monetary authority manages the supply of reserves, as liquidity effects vanish in the short run. In the long run, however, the additional freedom the monetary authority acquires by paying interest on reserves is best described as affecting the real quantity of reserves: policy actions that change prices must still change the nominal quantity of reserves proportionally.

scholarly journals Forward Guidance without Common Knowledge

2018 ◽  
Vol 108 (9) ◽  
pp. 2477-2512 ◽  
Author(s):  
George-Marios Angeletos ◽  
Chen Lian
Keyword(s):  
General Equilibrium ◽  
Common Knowledge ◽  
Feedback Loops ◽  
New Keynesian ◽  
New Keynesian Model ◽  
Aggregate Level ◽  
Standard Practice ◽  
Forward Guidance ◽  
Keynesian Model ◽  
Forward Looking

How does the economy respond to news about future policies or future fundamentals? Standard practice assumes that agents have common knowledge of such news and face no uncertainty about how others will respond. Relaxing this assumption attenuates the general equilibrium effects of news and rationalizes a form of myopia at the aggregate level. We establish these insights within a class of games which nests, but is not limited to, the New Keynesian model. Our results help resolve the forward-guidance puzzle, offer a rationale for the front-loading of fiscal stimuli, and illustrate more broadly the fragility of predictions that rest on long series of forward-looking feedback loops. (JEL D82, D83, D84, E12, E23, E52, E62)

scholarly journals DESIGNING MONETARY AND FISCAL POLICY RULES IN A NEW KEYNESIAN MODEL WITH RULE-OF-THUMB CONSUMERS

2012 ◽  
Vol 18 (2) ◽  
pp. 395-417 ◽  
Author(s):  
Raffaele Rossi
Keyword(s):  
Steady State ◽  
Fiscal Policy ◽  
Public Debt ◽  
New Keynesian ◽  
Ricardian Equivalence ◽  
New Keynesian Model ◽  
Policy Rules ◽  
Rule Of Thumb ◽  
Keynesian Model ◽  
Monetary And Fiscal Policy

This paper studies the determinacy properties of monetary and fiscal policy rules in a small-scale New Keynesian model. We modify the standard model in two ways. First, we allow positive public debt in the steady state as in Leeper [Journal of Monetary Economics 27, 129–147 (1991)]. Second, we add rule-of-thumb consumers as in Bilbiie [Journal of Economic Theory 140, 162–196 (2008)]. Leeper studied a model in which Ricardian equivalence holds, and he showed that monetary and fiscal policy can be studied independently. In Bilbiie's analysis, rule-of-thumb consumers break the Ricardian equivalence and generate important consequences for the design of monetary policy. In his model, steady-state public debt was equal to zero. We study a model with both rule-of-thumb consumers and positive steady-state public debt. We find that the mix of fiscal and monetary policies that guarantees equilibrium determinacy is sensitive to the exact values of the parameters of the model.

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