Details

Autor(en) / Beteiligte

• Bonciani, Dario
• Oh, Joonseok

Titel

Revisiting the New Keynesian policy paradoxes under QE

Ist Teil von

• European economic review, 2023-05, Vol.154, p.104429, Article 104429

Ort / Verlag

Elsevier B.V

Erscheinungsjahr

2023

Link zum Volltext

Quelle

Elsevier ScienceDirect Journals Complete

Beschreibungen/Notizen

• Standard New Keynesian models deliver puzzling results at the effective lower bound of short-term interest rates: greater price flexibility amplifies the fall in the output gap in response to adverse demand shocks; labour tax cuts are contractionary; the multiplier of wasteful government spending is large. These outcomes stem from a failure to characterise monetary policy correctly. Both analytically and numerically, we show that allowing the central bank to respond to inflation with quantitative easing can resolve all these paradoxes. In quantitative terms, mild adjustments to the central bank’s balance sheet are sufficient to obtain results more in line with conventional wisdom.