This paper analyzes the optimal behavior of the Central Bank in an economy characterized by balanced growth. We show how trend-growth affects the dynamics of inflation, the preferences of a welfare-maximizing Central Bank and optimal monetary policy. In particular, we show that the optimal monetary policy response to cost-push shocks is not invariant to trend growth, and that countries with lower trend growth have substantially higher incentives to commit to simple rules, both from a welfare and price-stability perspectives. (C) 2010 Elsevier Inc. All rights reserved.
Trend growth and optimal monetary policy / Fabrizio, Mattesini; Nistico', Salvatore. - In: JOURNAL OF MACROECONOMICS. - ISSN 0164-0704. - STAMPA. - 32:3(2010), pp. 797-815. [10.1016/j.jmacro.2010.02.001]
Trend growth and optimal monetary policy
NISTICO', SALVATORE
2010
Abstract
This paper analyzes the optimal behavior of the Central Bank in an economy characterized by balanced growth. We show how trend-growth affects the dynamics of inflation, the preferences of a welfare-maximizing Central Bank and optimal monetary policy. In particular, we show that the optimal monetary policy response to cost-push shocks is not invariant to trend growth, and that countries with lower trend growth have substantially higher incentives to commit to simple rules, both from a welfare and price-stability perspectives. (C) 2010 Elsevier Inc. All rights reserved.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
