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Old-Keynesianism in the New Keynesian Model

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  • Christiaan Kwaak

    (University of Groningen)

Abstract

I investigate an ‘old Keynesian’ fiscal policy in which government spending endogenously responds to inflation and the output gap when the nominal interest rate is pegged at the ZLB. I do so within a standard Representative Agent New Keynesian model (RANK), as well as a two-period Overlapping Generations New Keynesian model (OLG-NK). For both model versions, I find that the equilibrium values for inflation and the output gap under a standard Taylor rule regime can be replicated under the ‘old Keynesian’ regime. However, a unique stable countercyclical equilibrium is only feasible within the OLG-NK model and crucially depends on the pension system.

Suggested Citation

  • Christiaan Kwaak, 2024. "Old-Keynesianism in the New Keynesian Model," De Economist, Springer, vol. 172(3), pages 167-232, September.
    • Handle: RePEc:kap:decono:v:172:y:2024:i:3:d:10.1007_s10645-024-09437-3
    DOI: 10.1007/s10645-024-09437-3
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