Working Paper: NBER ID: w22311
Authors: Julio Garn; Robert Lester; Eric Sims
Abstract: The basic New Keynesian model predicts that positive supply shocks are less expansionary at the zero lower bound (ZLB) compared to periods of active monetary policy. We test this prediction empirically using Fernald's (2014) utilization-adjusted total factor productivity series, which we take as a measure of exogenous productivity. In contrast to the predictions of the model, positive productivity shocks are estimated to be more expansionary at the ZLB compared to normal times. However, in line with the predictions of the basic model, positive productivity shocks have a stronger negative effect on inflation at the ZLB.
Keywords: supply shocks; zero lower bound; New Keynesian model; utilization-adjusted TFP
JEL Codes: E31; E32; E43; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| positive productivity shocks (O49) | output increase at the ZLB (E23) |
| output increase at the ZLB (E23) | output increase during normal times (E23) |
| positive productivity shocks (O49) | inflation decrease at the ZLB (E31) |
| inflation decrease at the ZLB (E31) | smaller output response as theorized by NK model (O41) |