Seminar

Webex-seminar: Old-Keynesianism in the New Keynesian model

On Tuesday November 17th 2020, Christiaan van der Kwaak (University of Groningen) will give an online presentation titled: "Old-Keynesianism in the New Keynesian model." To attend this seminar, please send an e-mail to Simone Pailer (S.Pailer@cpb.nl). Then you will receive a Webex-invitation via Outlook.

Date
November 17, 2020
Time
13:00 - 14:00
Location
Online (Webex). To attend this seminar, please send an e-mail to Simone Pailer (S.Pailer@cpb.nl). Then you will receive a Webex-invitation via Outlook.
Presentation
Christiaan van der Kwaak (University of Groningen)
Working language
English

Yield curves on advanced economies' government debt imply that financial markets expect short-term interest rates to remain close to or at the Zero Lower Bound (ZLB) for many years or decades to come. In such a situation, conventional monetary policy can no longer be employed for macroeconomic stabilization. Therefore, I investigate an alternative “old Keynesian” fiscal policy in which government spending endogenously responds to inflation and the output gap, while the nominal interest rate is pegged at the ZLB. I do so within a standard Representative Agent New Keynesian model (RANK), as well as a two-period Overlapping Generations New Keynesian model (OLG-NK). For both model versions, I find that the equilibrium values for inflation and the output gap under a standard Taylor rule regime can be replicated under the “old Keynesian” regime. However, a unique stable countercyclical equilibrium is only feasible within the OLG-NK model. Finally I show that the old Keynesian policy features a “fiscal” divine coincidence under which government spending can simultaneously ensure zero inflation and elimination of the output gap.

Contacts

Foto Simone Pailer
Simone Pailer +31 6 21856579 Read more