New Keynesian Economics through the Extensive Margin / Saki Bigio, Akira Ishide.

Format:

Book

Author/Creator:

Bigio, Saki.

Contributor:

Ishide, Akira.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w33332.

NBER working paper series no. w33332

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2025.

Summary:

This paper reformulates the New Keynesian model to incorporate output adjustments through the extensive margin. Shifting from adjustments through the intensive to the extensive employment margin, the model introduces predetermined output, altering key properties of the New Keynesian framework. First, the Taylor principle is inverted: stability is achieved when nominal rates respond less than one-for-one with inflation. Second, the model significantly alters the output responses to changes in monetary policy. We argue that this represents a challenge and an opportunity for the literature. Sticky information allows the model to correct the sign of impulse responses.

Notes:

January 2025.

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