Are Supply Shocks Contractionary at the ZLB? Evidence from Utilization-Adjusted TFP Data
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.
We are grateful to Ruediger Bachmann, Bill Lastrapes, and Ron Mau for helpful comments and suggestions which have improved the paper. The usual disclaimer applies. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Julio Garín & Robert Lester & Eric Sims, 2019. "Are Supply Shocks Contractionary at the ZLB? Evidence from Utilization-Adjusted TFP Data," The Review of Economics and Statistics, vol 101(1), pages 160-175. citation courtesy of