Arbeitspapier

Monetary Policy and Hysteresis in Potential Output

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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.

Language: Englisch

Bibliographic citation: Series: IMK Working Paper ; No. 116

Classification: Wirtschaft
Business Fluctuations; Cycles
Monetary Policy, Central Banking, and the Supply of Money and Credit: General
Monetary Policy

Subject: Monetary Policy
Hysteresis
Potential Output
Output Gap Mismeasurement

Event: Geistige Schöpfung

(who): Kienzler, Daniel
Schmid, Kai Daniel

Event: Veröffentlichung

(who): Hans-Böckler-Stiftung, Institut für Makroökonomie und Konjunkturforschung (IMK)

(where): Düsseldorf

(when): 2013

Handle: http://hdl.handle.net/10419/105986

URN: urn:nbn:de:101:1-201403118796

Last update: 10.03.2025, 11:44 AM CET

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Object type

Arbeitspapier

Associated

Kienzler, Daniel
Schmid, Kai Daniel
Hans-Böckler-Stiftung, Institut für Makroökonomie und Konjunkturforschung (IMK)

Time of origin

2013

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