Trend Growth and Robust Monetary Policy

2020 ◽  
Author(s):  
Kohei Hasui
Keyword(s):  

2018 ◽  
Vol 23 (4) ◽  
pp. 1703-1719
Author(s):  
Wolfgang Lechthaler ◽  
Mewael F. Tesfaselassie

We analyze the implications of trend growth for optimal monetary policy in the presence of search and matching unemployment. We show that trend growth interacts importantly with the inefficiencies stemming from the labor market. Higher trend growth exacerbates the inefficiencies of the labor market and therefore calls for larger deviations from price stability. Our analysis implies that lower trend growth reduces not only the level but also the optimal volatility of the nominal interest rate.



2015 ◽  
Vol 21 (1) ◽  
pp. 243-258
Author(s):  
Eric Schaling ◽  
Mewael F. Tesfaselassie

We analyze the implications of openness and growth for determinacy and learnability of rational expectations equilibria in a two-country New Keynesian model with alternative monetary policy rules. Under the contemporaneous data rule, the conditions for determinacy and learnability become more stringent as a result of openness but less stringent as a result of growth, so that growth weakens the effect of openness. Under the expectations-based rule, the conditions for determinacy and learnability also become more stringent as a result of openness, whereas as a result of trend growth the conditions for determinacy also become more stringent (thus reinforcing the effect of openness) but those for learnability become less stringent (thus weakening the effect of openness). As in related studies, the elasticity of intertemporal substitution is key to our result, but within a framework that is consistent with long-run labor supply and balanced growth facts.





2020 ◽  
Vol 0 (0) ◽  
Author(s):  
Kohei Hasui

AbstractRecent monetary policy studies have shown that the trend productivity growth has non-trivial implications for monetary policy. This paper investigates how trend growth alters the effect of model uncertainty on macroeconomic fluctuations by introducing a robust control problem. We show that an increase in trend growth reduces the effect of the central bank’s model uncertainty and, hence, mitigates the large macroeconomic fluctuations. Moreover, the increase in trend growth contributes to bringing the economy into determinacy regions even if larger model uncertainty exists. These results indicate that trend growth contributes to stabilizing the economy in terms of both variance and determinacy when model uncertainty exists.



2010 ◽  
Vol 32 (3) ◽  
pp. 797-815 ◽  
Author(s):  
Fabrizio Mattesini ◽  
Salvatore Nisticò


2006 ◽  
Author(s):  
Vítor Gaspar ◽  
Otmar Issing ◽  
Oreste Tristani ◽  
David Vestin


Author(s):  
Michael D. Bordo ◽  
David C. Wheelock
Keyword(s):  


10.32468/be.0 ◽  
2012 ◽  
Author(s):  
Hernando Vargas-Herrera ◽  
Pamela Andrea Cardozo-Ortiz


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