Monetary policy and hysteresis in potential output
"We show that actively stabilizing economic activity plays a more prominent role in the conduct of monetary policy when potential output is subject to hysteresis. We augment a basic NewKeynesian model by hysteresis in potential output and contrast simulation outcomes of this extended model to t...
| Main Authors: | , |
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| Institution: | ETUI-European Trade Union Institute |
| Format: | TEXT |
| Language: | English |
| Published: |
Düsseldorf
2013
IMK |
| Subjects: | |
| Online Access: | https://www.labourline.org/KENTIKA-19124366124919425489-Monetary-policy-and-hysteresis.htm |
| Summary: | "We show that actively stabilizing economic activity plays a more prominent role in the conduct of monetary policy when potential output is subject to hysteresis. We augment a basic NewKeynesian model by hysteresis in potential output and contrast simulation outcomes of this extended model to the standard model. We find that considering hysteresis allows for a more realistic propagation of macroeconomic shocks and persistent movements in output after monetary shocks. Our central policy implication of active output gap stabilization arises from stability analyses and welfare considerations." |
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| Physical Description: | 34 p. Digital |