Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
965376 | Journal of Macroeconomics | 2014 | 15 Pages |
Abstract
This paper builds a New Keynesian model with financial frictions and monetary and fiscal rules for the United States. We incorporate a rational bubble process in the (relative) price of capital. Our results show that bubbles account for a significant amount of variance in key macroeconomic variables and are as important as investment-specific shocks in explaining total variation. Further, we show that a bursting bubble creates large and long-lasting real effects. In particular, we find large effects on government debt that persist for several years.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Marc-André Luik, Dennis Wesselbaum,