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Symmetry condition and re-assessing Blanchard-Kiyotaki decades later

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  • Kim, Minseong

Abstract

We re-assess Blanchard-Kiyotaki (1987). We conclude that there are multiple equilibria even under the flexible-price Blanchard-Kiyotaki model, and that the model only obtains equilibrium uniqueness through the symmetry condition that is partially justified only when there are infinitely many firms. Without imposition of the symmetry condition, monetary policy has a significant role in determining a flexible-price equilibrium under the Blanchard-Kiyotaki setup. While the Blanchard-Kiyotaki framework is becoming deprecated, the symmetry condition is still sometimes invoked in monopolistic competition literature, and thus logic behind it is in need of more scrutiny. We discuss implications on understanding New Keynesian paradoxes in zero lower bound circumstances.

Suggested Citation

  • Kim, Minseong, 2019. "Symmetry condition and re-assessing Blanchard-Kiyotaki decades later," MPRA Paper 96945, University Library of Munich, Germany, revised 11 Nov 2019.
    • Handle: RePEc:pra:mprapa:96945
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    References listed on IDEAS

    as
    1. Michael Kiley, 2016. "Policy Paradoxes in the New-Keynesian Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 21, pages 1-15, July.
    2. Cochrane, John H., 2017. "The new-Keynesian liquidity trap," Journal of Monetary Economics, Elsevier, vol. 92(C), pages 47-63.
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    More about this item

    Keywords

    Blanchard-Kiyotaki; symmetry condition; New Keynesian economics; multiple equilibria; monetary non-neutrality; monopolistic competition; New Keynesian paradoxes; zero lower bound;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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