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growth requires precise information on shock characteristics whereas inflationgap and output-gap oriented interest policies …
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How should monetary policy respond to changes in financial conditions? In this paper we consider a simple model where firms are subject to idiosyncratic shocks which may force them to default on their debt. Firms’ assets and liabilities are denominated in nominal terms and predetermined when...
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Recent empirical evidence by Fair (2002,2005) and Giordani (2003) shows that a positive inflation shock with the … include wealth effects. It is demonstrated that, following an inflation shock, the decline of output coupled with passive …
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