scholarly journals QUADRATIC LABOR ADJUSTMENT COSTS, BUSINESS CYCLE DYNAMICS, AND OPTIMAL MONETARY POLICY

2012 ◽  
Vol 17 (2) ◽  
pp. 464-475 ◽  
Author(s):  
Wolfgang Lechthaler ◽  
Dennis J. Snower
Keyword(s):  
Monetary Policy ◽  
Business Cycle ◽  
Adjustment Costs ◽  
New Keynesian ◽  
Optimal Monetary Policy ◽  
Labor Adjustment Costs ◽  
Keynesian Model ◽  
Labor Adjustment ◽  
Output Persistence ◽  
The Business Cycle

We build quadratic labor adjustment costs into an otherwise standard New Keynesian model of the business cycle and show that this increases output persistence in a vein similar to that of other models of labor market frictions. Furthermore, we demonstrate the implication of quadratic labor adjustment costs for monetary policy. We show that there is a simple rule determining whether quadratic labor adjustment costs imply a trade-off between stabilizing inflation and output.

scholarly journals LOAN PRODUCTION AND MONETARY POLICY

2017 ◽  
Vol 23 (1) ◽  
pp. 101-143
Author(s):  
Miguel Casares ◽  
Luca Deidda ◽  
Jose E. Galdon-Sanchez
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Business Cycle ◽  
Financial Frictions ◽  
New Keynesian ◽  
New Keynesian Model ◽  
Optimal Monetary Policy ◽  
External Finance ◽  
Business Cycle Fluctuations ◽  
Keynesian Model

We examine optimal monetary policy in a New Keynesian model with unemployment and financial frictions where banks produce loans using equity as collateral. Firms and households demand loans to finance externally a fraction of their flows of expenditures. Our findings show amplifying business-cycle effects of a more rigid loan production technology. In the monetary policy analysis, the optimal rule clearly outperforms a Taylor-type rule. The optimized interest-rate response to the external finance premium turns significantly negative when either banking rigidities are high or when financial shocks are the only source of business cycle fluctuations.

scholarly journals Dynamic Debt Deleveraging and Optimal Monetary Policy

2020 ◽  
Vol 12 (2) ◽  
pp. 310-350 ◽  
Author(s):  
Pierpaolo Benigno ◽  
Gauti B. Eggertsson ◽  
Federica Romei
Keyword(s):  
Monetary Policy ◽  
Lower Bound ◽  
New Keynesian ◽  
New Keynesian Model ◽  
Optimal Monetary Policy ◽  
Natural Rate ◽  
Keynesian Model ◽  
Natural Rate Of Interest ◽  
Standard Framework

This paper proposes a postcrisis New Keynesian model that incorporates agent heterogeneity in borrowing and lending with a minimum set of assumptions. Unlike the standard framework, this model makes the natural rate of interest endogenous and dependent on macroeconomic policy. The main application is to study optimal monetary policy at the zero lower bound (ZLB). Such policy succeeds in raising the natural rate of interest by creating an environment that speeds up deleveraging and thus endogenously shortens the crisis and the duration of binding ZLB. Inflation should be front-loaded and should overshoot its long-term target during the ZLB episode. (JEL E12, E31, E32, E43, E52)

scholarly journals ROBUST MONETARY POLICY IN A NEW KEYNESIAN MODEL WITH IMPERFECT INTEREST RATE PASS-THROUGH

2015 ◽  
Vol 20 (6) ◽  
pp. 1504-1526 ◽  
Author(s):  
Rafael Gerke ◽  
Felix Hammermann
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Central Bank ◽  
Model Misspecification ◽  
New Keynesian ◽  
Optimal Monetary Policy ◽  
Loan Rate ◽  
Keynesian Model ◽  
Pass Through ◽  
Policy Shifts

We use robust control to study how a central bank in an economy with imperfect interest rate pass-through conducts monetary policy if it fears that its model could be misspecified. We find that, first, whether robust optimal monetary policy under commitment responds more cautiously or more aggressively depends crucially on the source of shock. Imperfect pass-through amplifies the robust policy. Second, if the central bank is concerned about uncertainty, it dampens volatility in the inflation rate preemptively but accepts higher volatility in the output gap and loan rate. However, for highly sticky loan rates, insurance against model misspecification becomes particularly pricy. Third, if the central bank fears uncertainty only in the IS equation or the loan rate equation, the robust policy shifts its concern for stabilization away from inflation.

INNOVATION, GROWTH, AND OPTIMAL MONETARY POLICY

2019 ◽  
pp. 1-24
Author(s):  
Barbara Annicchiarico ◽  
Alessandra Pelloni
Keyword(s):  
Monetary Policy ◽  
Inflation Targeting ◽  
Public Spending ◽  
New Keynesian ◽  
Positive Trend ◽  
Policy Recommendation ◽  
Optimal Monetary Policy ◽  
Keynesian Model ◽  
Trend Inflation ◽  
Short Run

This paper examines how innovation-led growth affects optimal monetary policy. We consider the Ramsey policy in a New Keynesian model where R&D leads to an expanding variety of intermediate goods and compare the results with those obtained when the expansion occurs exogenously. Positive trend inflation is found to be optimal under both assumptions, but much higher with profit-seeking innovation. Optimal monetary policy must be counter-cyclical in response to both technology and public spending shocks, yet the intensity of the reaction crucially depends on the presence of an R&D sector. However, the small amount of short-run deviations of prices from the non-zero trend inflation observed in response to shocks suggests inflation targeting as a robust policy recommendation.

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