Meaning of divine coincidence | Babel Free

Definitions

The property of a (New Keynesian) macroeconomic model that stabilizing inflation and stabilizing the (relevant) output gap is equivalent.

countable, uncountable

Examples

“In [the standard new Keynesian framework], stabilizing inflation is equivalent to stabilizing the welfare-relevant output gap. In this paper, we argue that this property of the new Keynesian framework, which we call the divine coincidence, is due to a special feature of the model […]”

“Because credit shocks appear in the Phillips curve, the so-called divine coincidence […] does not hold, and it is not possible to achieve the global minimum of the loss function with just one policy instrument.”

CEFR level