NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Are Supply Shocks Contractionary at the ZLB? Evidence from Utilization-Adjusted TFP Data

Julio Garín, Robert Lester, Eric Sims

NBER Working Paper No. 22311
Issued in June 2016
NBER Program(s):   EFG   ME

The basic New Keynesian model predicts that positive supply shocks are less expansionary at the zero lower bound (ZLB) compared to periods of active monetary policy. We test this prediction empirically using Fernald's (2014) utilization-adjusted total factor productivity series, which we take as a measure of exogenous productivity. In contrast to the predictions of the model, positive productivity shocks are estimated to be more expansionary at the ZLB compared to normal times. However, in line with the predictions of the basic model, positive productivity shocks have a stronger negative effect on inflation at the ZLB.

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Document Object Identifier (DOI): 10.3386/w22311

 
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