Interest rate policy and supply-side adjustment dynamics

Arbeitspapier

In contrast to the present consensus view of stabilization policy, theoretical and empirical research strongly support the consideration of supply-side adjustment to pronounced variations of factor-utilization in order to trace a more realistic pattern of macroeconomic adjustment dynamics within simulation studies. Against this background, our paper seeks to illuminate the relevance of endogenous supply-side adjustment for monetary policy research. We modify a basic New Keynesian model by explicitly considering demand-side stimulus on the evolution of productive capacity and analyze stability, impulse response, and welfare issues if the central bank follows a simple monetary policy rule. Thereby, we control for the robustness of our policy implications by various states of output gap mismeasurement the central bank might be confronted with. We find that, in contrast to a basic New Keynesian Model, output gap stabilization plays a more prominent role when potential output is endogenous.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IAW Diskussionspapiere ; No. 68

Classification and Topics

• Classification: Wirtschaft ; Business Fluctuations; Cycles ; Monetary Policy, Central Banking, and the Supply of Money and Credit: General ; Monetary Policy
• Subject: Monetary policy ; factor-utilization ; endogenous potential output ; output gap mismeasurement ; Zinspolitik ; Regelgebundene Politik ; Konjunkturpolitik ; Neukeynesianische Makroökonomik ; Gesamtwirtschaftliche Produktionstheorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kienzler, Daniel ; Schmid, Kai
• Event: Veröffentlichung
• (who): Institut für Angewandte Wirtschaftsforschung (IAW)
• (where): Tübingen
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/56774
• Last update: 10.03.2025, 11:44 AM CET