In this study, we analyze the relationship between inflation and economic growth. To this end, we construct a model of endogenous growth with creative destruction, incorporating sticky prices due to menu costs. Inflation and deflation reduce the reward for innovation via menu cost payments and,...

The determinacy of dynamic stochastic general equilibrium models including fiscal, macro-prudential or Taylor rules relies on the assumption that policy instruments are forward-looking when policy targets are also forward-looking. Blanchard and Kahn (1980) determinacy condition does not forbid...

In this study, we illustrate a tradeoff between the short-run positive and long-run negative effects of monetary easing by using a dynamic stochastic general equilibrium model embedding endogenous growth with creative destruction and sticky prices due to menu costs. While a monetary easing shock...

Advanced economies are undergoing a structural transformation from manufacturing to services. We document that structural change comes with a process of services deepening: over time, both services and manufacturing become more intensive in service inputs. We argue that structural transformation...

This paper analyses how labour market heterogeneity affects unemployment, productivity and business cycle dynamics that are relevant for monetary policy. The model matches remarkably well the short and long run dynamics of skilled and unskilled workers. Skill mismatch and skill-specific labour...

Standard New Keynesian (NK) models feature an optimal inflation target well below two percent, limited welfare losses from business cycle fluctuations and long-term monetary neutrality. We develop a NK framework with labour market frictions, endogenous productivity and downward wage rigidity...

We analyze the implications for monetary policy when deficient aggregate demand can cause a permanent loss in potential output, a phenomenon we term output hysteresis. In the model, the incomplete stabilization of a temporary shortfall in demand reduces the return to innovation, thus reducing...

Optimal tax and monetary policies in a stochastic monetary growth model are investigated. Our findings are of three general types. First, both capital income taxes and monetary growth are shown to influence the economy through effective risk-adjusted measures, expressed as a linear function of...

We propose a theoretical framework to reconcile episodes of V-shaped and L-shaped recovery, en- compassing the behaviour of the U.S. economy before and after the Great Recession. In a DSGE model with endogenous growth, negative demand shocks destroy productive capacity, moving GDP to a lower...