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Endogenous Technological Change and the New Keynesian Model

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  • Toshihiro Okada

    (Kwansei Gakuin University)

Abstract

This paper develops and estimates a New Keynesian (NK) model with endogenous technology. It shows that introducing endogenous technology can solve three important puzzles that conventional NK models face: the inflation persistence, disinflationary news shock, and zero lower bound (ZLB) supply shock. First, the observed persistence in inflation is explained without relying on the conventional NK models' additional assumptions (e.g., backward price indexation). Second, it explains the observed disinflationary effect of a news shock. Third, the model avoids the conventional NK models' paradoxical, empirically inconsistent prediction that a negative supply shock is expansionary at the ZLB on interest rates.

Suggested Citation

  • Toshihiro Okada, 2022. "Endogenous Technological Change and the New Keynesian Model," The Review of Economics and Statistics, MIT Press, vol. 104(6), pages 1224-1240, November.
    • Handle: RePEc:tpr:restat:v:104:y:2022:i:6:p:1224-1240
    DOI: 10.1162/rest_a_00971
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