A NOTE ON THE UNIQUENESS OF STEADY-STATE EQUILIBRIUM UNDER STATE-DEPENDENT WAGE SETTING

2020 ◽  
pp. 1-12
Author(s):  
Shuhei Takahashi
Keyword(s):  
Steady State ◽  
Multiple Equilibria ◽  
New Keynesian ◽  
Wage Setting ◽  
State Equilibrium ◽  
Strategic Complementarity ◽  
State Dependent ◽  
Keynesian Model ◽  
Fixed Wage ◽  
Parameter Values

Does wage setting exhibit strategic complementarity and produce multiple equilibria? This study constructs a discrete-time New Keynesian model in which households choose the timing of their wage adjustments endogenously subject to fixed wage-setting costs. I explore steady-state equilibrium of the state-dependent wage-setting model both analytically and numerically. For reasonable parameter values, complementarity in wage setting is weak and the steady-state equilibrium is unique.

scholarly journals Information Use and the Condorcet Jury Theorem

Mathematics ◽  
2021 ◽  
Vol 9 (10) ◽  
pp. 1098
Author(s):  
Keiichi Morimoto
Keyword(s):  
Monetary Policy ◽  
Voting Behavior ◽  
Imperfect Information ◽  
Information Use ◽  
Information Aggregation ◽  
New Keynesian ◽  
Strategic Complementarity ◽  
Keynesian Model ◽  
Jury Theorem

Using a simple model of a coordination game, this paper explores how the information use of individuals affects an optimal committee size. Although enlarging the committee promotes information aggregation, it also stimulates the members’ coordination motive and distorts their voting behavior through higher-order beliefs. On the determination of a finite optimal committee size, the direction and degree of strategic interactions matter. When the strategic complementarity among members is strong, a finite optimal committee size exists. In contrast, it does not exist under strategic substitution. This mechanism is applied to the design of monetary policy committees in a New Keynesian model in which a committee conducts monetary policy under imperfect information.

scholarly journals Heterogeneity in Wage Setting Behavior in a New-Keynesian Model

2015 ◽  
Author(s):  
Sylvester C. W. Eijffinger ◽  
Anderson Grajales Olarte ◽  
Burak Uras
Keyword(s):  
New Keynesian ◽  
New Keynesian Model ◽  
Wage Setting ◽  
Keynesian Model

scholarly journals RAMSEY OPTIMAL POLICY IN THE NEW-KEYNESIAN MODEL WITH PUBLIC DEBT

2021 ◽  
pp. 1-27
Author(s):  
Jean-Bernard Chatelain ◽  
Kirsten Ralf
Keyword(s):  
Public Debt ◽  
Optimal Policy ◽  
Multiple Equilibria ◽  
New Keynesian ◽  
New Keynesian Model ◽  
Keynesian Model ◽  
Simple Rules ◽  
Debt Dynamics ◽  
Level Versus ◽  
The Interest Rate

In the discrete-time new-Keynesian model with public debt, Ramsey optimal policy eliminates the indeterminacy of simple-rules multiple equilibria between the fiscal theory of the price level versus new-Keynesian versus an unpleasant equilibrium. If public debt volatility is taken into account into the loss function, the interest rate responds to public debt besides inflation and output gap. Else, the Taylor rule is identical to Ramsey optimal policy when there is zero public debt. The optimal fiscal-rule parameter implies the local stability of public-debt dynamics (“passive” fiscal policy).

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.

scholarly journals Thai Monetary Policy Under the Inflation Targeting Regime

2020 ◽  
Author(s):  
Nipit Wongpunya
Keyword(s):  
Monetary Policy ◽  
Steady State ◽  
Inflation Targeting ◽  
Aggregate Demand ◽  
State Level ◽  
Dynamic Stochastic General Equilibrium ◽  
New Keynesian ◽  
Keynesian Model ◽  
Trend Inflation ◽  
Dynamic Stochastic

Abstract This paper explores the macroeconomic effects of inflation targeting in Thailand. Furthermore, this study uses a nonlinear new Keynesian model under the dynamic stochastic general equilibrium framework with price indexation to analyze the monetary policy under inflation targeting in Thailand. The model is estimated using a Bayesian statistic for the Thai economy. It shows that inflation is more stabilized and inflation persistence has fallen after adopting inflation targeting. The paper also indicates that the Bank of Thailand is more responsive to the deviation of inflation from its target using inflation targeting. The key monetary mechanism exists through changes in the real interest rate which affect aggregate demand. It is worth noting that the larger the inflation targeting rate is, the lower the steady state output from its steady state level given no trend inflation.

UNANCHORED EXPECTATIONS: SELF-REINFORCING LIQUIDITY TRAPS AND MULTIPLE STEADY STATES

2019 ◽  
pp. 1-29 ◽  
Author(s):  
Joep Lustenhouwer
Keyword(s):  
Steady State ◽  
Discrete Choice ◽  
Steady States ◽  
New Keynesian ◽  
Multiple Steady States ◽  
New Keynesian Model ◽  
Expectation Values ◽  
Inflation Target ◽  
Liquidity Trap ◽  
Keynesian Model

We study a New Keynesian model with bounded rationality, where agents choose their expectations heterogeneously from a discrete choice set. The range of their set of possible expectation values can be interpreted as the anchoring of expectations. In the model, multiple locally stable steady states can arise that reflect coordination on particular expectation values. Moreover, bad shocks to the economy can trigger a self-reinforcing wave of pessimism, where the zero lower bound on the nominal interest rate becomes binding, and agents coordinate on a locally stable liquidity trap steady state. When we let the anchoring of expectations evolve endogenously, it turns out that the anchoring of expectations at the time the bad shocks hit the economy is crucial in determining whether the economy can recover from the liquidity trap. Finally, we find that a higher inflation target makes it less likely that self-reinforcing liquidity traps arise.

INTEREST RATE RULES AND EQUILIBRIUM STABILITY UNDER DEEP HABITS

2013 ◽  
Vol 18 (1) ◽  
pp. 23-40 ◽  
Author(s):  
Sarah Zubairy
Keyword(s):  
Interest Rate ◽  
Multiple Equilibria ◽  
New Keynesian ◽  
New Keynesian Model ◽  
Interest Rate Rules ◽  
Keynesian Model ◽  
Interest Rate Rule ◽  
Countercyclical Markups ◽  
High Degree ◽  
Very High

This paper studies the determinacy of equilibrium in a new Keynesian model with deep habits under different interest rate rules. The main finding is that an interest rate rule satisfying the Taylor principle is no longer a sufficient condition to guarantee determinacy. Including interest rate smoothing and a response to output deviations from steady state significantly enlarges the regions of determinacy. However, under all the simple interest rate rules considered, determinacy is not guaranteed for a very high degree of deep habits. Deep habits give rise to countercyclical markups, which is in line with empirical evidence and makes them an appealing feature in the study of demand shocks. The countercyclicality of markups also leads to multiple equilibria because of self-fulfilling expectations for a high degree of deep habit formation.

scholarly journals Discretionary policy and multiple equilibria in a new Keynesian model

2019 ◽  
Author(s):  
Volker Hahn
Keyword(s):  
Rational Expectations ◽  
Multiple Equilibria ◽  
Alternative Explanation ◽  
New Keynesian ◽  
Macroeconomic Fluctuations ◽  
Economic Fundamentals ◽  
Keynesian Model ◽  
Endogenous Variables ◽  
New Policies ◽  
High Degree

Abstract We show that discretionary policymaking can lead to multiple rational-expectations equilibria where the central bank responds to inflation sentiments, which are driven by past endogenous variables but are unrelated to current economic fundamentals. Some of these equilibria have favourable consequences for welfare, resulting in outcomes superior even to those achieved under timeless-perspective commitment. Inflation sentiments also provide a novel explanation for the sizeable macroeconomic fluctuations in many countries in the 1970s. Compared to interest-rate rules violating the Taylor principle, our explanation has the advantage of providing a rationale for why central banks that are confronted with inefficiently large macroeconomic fluctuations may not be able to deviate to new policies with superior macroeconomic outcomes. Moreover, we show that our approach provides an alternative explanation for the high degree of inflation persistence found in the data.

scholarly journals HYPERBOLIC DISCOUNTING AND POSITIVE OPTIMAL INFLATION

2012 ◽  
Vol 17 (3) ◽  
pp. 591-620 ◽  
Author(s):  
Liam Graham ◽  
Dennis J. Snower
Keyword(s):  
Steady State ◽  
Recent Work ◽  
Hyperbolic Discounting ◽  
New Keynesian ◽  
New Keynesian Model ◽  
Real Rate ◽  
Friedman Rule ◽  
Keynesian Model ◽  
Wide Range ◽  
Economic Studies

The Friedman rule states that steady-state welfare is maximized when there is deflation at the real rate of interest. Recent work by Khan, King, and Wolman [Review of Economic Studies10 (4), 825–860] uses a richer model but still finds deflation optimal. In an otherwise standard New Keynesian model we show that, if households have hyperbolic discounting, small positive rates of inflation can be optimal. In our baseline calibration, the optimal rate of inflation is 2.1% and remains positive across a wide range of calibrations.

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