<abstract xmlns="http://www.w3.org/1999/xhtml"><p>The study investigates the effect of New Keynesian liquidity trap on fiscal stance in the United States, United Kingdom and Japan economies. We developed our DSGE model in the context of an optimal and persistent interactive fiscal policy, which allows us to track the transmission channel through which shocks are distributed among real economic variables. The evidence suggests that zero lower bound mitigates the ability of monetary policy to absorb the effect of exogenous shock on the macroeconomic variables while expansionary fiscal policy was able to absorb the shock persistence transmitted from the nominal interest rate.</p></abstract>

The study investigates the effect of New Keynesian liquidity trap on fiscal stance in the United States, United Kingdom and Japan economies. We developed our DSGE model in the context of an optimal and persistent interactive fiscal policy, which allows us to track the transmission channel through which shocks are distributed among real economic variables. The evidence suggests that zero lower bound mitigates the ability of monetary policy to absorb the effect of exogenous shock on the macroeconomic variables while expansionary fiscal policy was able to absorb the shock persistence transmitted from the nominal interest rate.

New Keynesian Liquidity Trap and Conventional Fiscal Stance: An Estimated DSGE Model

Economics and Business

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

The study investigates the effect of New Keynesian liquidity trap on fiscal stance in the United States, United Kingdom and Japan economies. We developed our...

New Keynesian Liquidity Trap and Conventional Fiscal Stance: An Estimated DSGE Model

Published Online: Sep 30, 2019

Page range: 152 - 169

DOI: https://doi.org/10.2478/eb-2019-0011

Keywords
Fiscal Policy, Liquidity Trap, Bayesian, DSGE Model

© 2019 Olatunji Abdul Shobande et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

New Keynesian Liquidity Trap and Conventional Fiscal Stance: An Estimated DSGE Model

Published Online: Sep 30, 2019

Page range: 152 - 169

DOI: https://doi.org/10.2478/eb-2019-0011

KeywordsFiscal Policy, Liquidity Trap, Bayesian, DSGE Model

© 2019 Olatunji Abdul Shobande et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

Keywords
Fiscal Policy, Liquidity Trap, Bayesian, DSGE Model