Trend growth and optimal monetary policy
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.
Year of publication: |
2010
|
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Authors: | Mattesini, Fabrizio ; Nisticò, Salvatore |
Published in: |
Journal of Macroeconomics. - Elsevier, ISSN 0164-0704. - Vol. 32.2010, 3, p. 797-815
|
Publisher: |
Elsevier |
Keywords: | Trend growth Optimal monetary policy Commitment |
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