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Working Paper
Some unpleasant properties of loglinearized solutions when the nominal rate is zero
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.
Working Paper
New Keynesian dynamics in a low interest rate environment
Recent research has found that the dynamic properties of the New Keynesian model can be very different when the nominal interest rate is zero. Improvements in technology and reductions in the labor tax rate lower economic activity, and the size of the government purchase output multiplier can be well above one. This paper provides evidence that the focus on specifications of the New Keynesian model that produce unorthodox results in a liquidity trap may be misplaced. We show that a prototypical New Keynesian model fit to Japanese data exhibits orthodox dynamics during Japan's episode with ...
Working Paper
Small and orthodox fiscal multipliers at the zero lower bound
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 literature is that the answer is yes. New evidence provided here suggests that the answer is often no. For a broad range of empirically relevant parameterizations of the Rotemberg model of costly price adjustment, the government purchase multiplier is about one or less, and the response of hours to a tax cut is either negative or close to zero.
Working Paper
How much asymmetry is there in bond returns and exchange rates?
We measure asymmetries in the distribution of bond returns and exchange rates and test their statistical significance. Asymmetries are sizable when measured by the coefficient of skewness, a measure that is highly affected by outliers. In contrast, robustly measured asymmetries to outliers often disagree in sign or size, implying that much of the asymmetries measured by the coefficient of skewness can be attributed to extreme observations. Asymmetries in many government bonds returns are only statistically significant according to tests based on the coefficient of skewness.> ; On the ...