We embed skill obsolescence and endogenous growth into a New Keynesian model with search‐and‐matching frictions. The model accounts for key features of the Great Recession: the “productivity puzzle” and the “missing disinflation puzzle.” Lower aggregate demand raises long‐term...

In a comment on our recent paper in this journal, Beetsma and Jensen claim that Propositions 3 and 4 of our paper are incorrect due to minor computational mistakes. In this reply we give the correct propositions and show that our results still stand. Our conclusion is that central bank...