2016-03-07Buch DOI: 10.18452/4624
The importance of timevaryingparametersin new Keynesian modelswith zero lower bound
In this paper we question the ability of New Keynesian models to reproduce the behavior of the nominal interest rate. In particular, we wonder if the model is able to reproduce infrequent but long ZLB spells as observed in the data. Starting from the canonical model, we compare alternative specifications like exogenous and endoge- nous time-varying parameters. We solve the different models with global approxima- tion methods and estimate them using the simulated method of moments. While the canonical model fails to reproduce typical ZLB spells, the endogenous time-varying parameters specification seems to be a promising avenue for research. We draw the implications of the alternative model’s specifications for the understanding of the mon- etary policy during ZLB episodes.
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