Resolving New Keynesian Anomalies With Wealth in the Utility Function: Phase Diagrams

This repository contains the phase diagrams from the paper "Resolving New Keynesian Anomalies With Wealth in the Utility Function", written by Pascal Michaillat and Emmanuel Saez, and published in the Review of Economics and Statistics in May 2021.

Paper webpage

The paper is available at https://pascalmichaillat.org/11/. The phase diagrams appear in figures 1–6.

Situations described by the diagrams

The phase diagrams describe a range of situations.

• Normal times – The natural rate of interest is positive, and monetary policy is active.
• Zero lower bound (ZLB) – The natural rate of interest is negative, and the monetary-policy rate is zero.
• ZLB episode of finite duration – The economy is at the ZLB between time 0 and time $T$, and it returns to normal after time $T$.
• ZLB episode with forward guidance – The economy is at the ZLB between time 0 and time $T$. The economy is then in forward guidance between time $T$ and time $T + \Delta$: the natural rate of interest is positive but the monetary-policy rate is zero. Finally, the economy returns to normal after time $T + \Delta$.
• ZLB episode with government spending – The economy is at the ZLB between time 0 and time $T$. During the ZLB, government spending is positive. The economy returns to normal after time $T$.

Phase diagrams for the NK model

The phase diagrams for the New Keynesian model (NK) are stored in the folder nk. The diagrams are drawn by hand using Keynote on Mac, and then exported to PDF.

• figure1A.key, figure1A.pdf – Figure 1A: NK model in normal times
• figure1C.key, figure1C.pdf – Figure 1C: NK model at the ZLB
• figure2A.key, figure2A.pdf – Figure 2A: NK model with short ZLB episode
• figure2C.key, figure2C.pdf – Figure 2C: NK model with long ZLB episode
• figure3A.key, figure3A.pdf – Figure 3A: NK model in forward guidance
• figure3B.key, figure3B.pdf – Figure 3B: NK model with short forward guidance after ZLB
• figure3C.key, figure3C.pdf – Figure 3C: NK model with medium forward guidance after ZLB
• figure3D.key, figure3D.pdf – Figure 3D: NK model with long forward guidance after ZLB
• figure5A.key, figure5A.pdf – Figure 5A: NK model at ZLB with no government spending
• figure5B.key, figure5B.pdf – Figure 5B: NK model at ZLB with low government spending
• figure5C.key, figure5C.pdf – Figure 5C: NK model at ZLB with medium government spending
• figure5D.key, figure5D.pdf – Figure 5D: NK model at ZLB with high government spending

Phase diagrams for the WUNK model

The phase diagrams for the New Keynesian model with wealth in the utility function (WUNK) are stored in the wunk folder. The diagrams are drawn by hand using Keynote on Mac, and then exported to PDF.

• figure1B.key, figure1B.pdf – Figure 1B: WUNK model in normal times
• figure1D.key, figure1D.pdf – Figure 1D: WUNK model at the ZLB
• figure2B.key, figure2B.pdf – Figure 2B: WUNK model with short ZLB episode
• figure2D.key, figure2D.pdf – Figure 2D: WUNK model with long ZLB episode
• figure4A.key, figure4A.pdf – Figure 4A: WUNK model in forward guidance
• figure4B.key, figure4B.pdf – Figure 4B: WUNK model with a short ZLB episode before forward guidance
• figure4C.key, figure4C.pdf – Figure 4C: WUNK model with a long ZLB episode before forward guidance
• figure4D.key, figure4D.pdf – Figure 4D: WUNK model with all possible ZLB and forward guidance durations
• figure6A.key, figure6A.pdf – Figure 6A: WUNK model at ZLB with no government spending
• figure6B.key, figure6B.pdf – Figure 6B: WUNK model at ZLB with low government spending
• figure6C.key, figure6C.pdf – Figure 6C: WUNK model at ZLB with medium government spending
• figure6D.key, figure6D.pdf – Figure 6D: WUNK model at ZLB with high government spending

License

The content of this repository was created by Pascal Michaillat and Emmanuel Saez and is licensed under the Creative Commons Attribution 4.0 International License.