Thursday, 18 April, 2024 | 14:00 | Room 402 | Macro Research Seminar

Mikhail Anufriev (University of Technology Sydney) "Leaning against the wind in the New Keynesian model with heterogeneous expectations"

Prof. Mikhail Anufriev

University of Technology Sydney, Australia

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Authors: Mikhail Anufriev, Fabio Lamantia, Davide Radi, and Tomas Tichy

Abstract: In this paper, we explore the efficiency of the Leaning Against the Wind (LAW) policy within the New Keynesian framework with heterogeneous expectations. To do so, we introduce the financial sector into the benchmark model using the financial accelerator channel. We show that the LAW policy can be counterproductive because it creates an equilibrium that can coexist with the desirable equilibrium. A more stringent LAW policy reduces the stability region of the desirable equilibrium. However, in cases where the desirable equilibrium is unstable, the LAW policy can help reduce the amplitude of economic fluctuations.

JEL Classification: C62, E58, E71, G12, G41
Keywords: New Keynesian Model, Financial Market, Heterogeneous Expectations, Leaning Against the Wind, Complex Economic Systems, Economic Dynamics

Full Text: Leaning against the wind in the New Keynesian model with heterogeneous expectations