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Endogenous growth and monetary policy: How do interest-rate feedback rules shape nominal and real transitional dynamics?

Pedro Gil, Gustavo Iglésias and Luís Guimarães

Journal of International Money and Finance, 2023, vol. 138, issue C

Abstract: Monetary authorities have followed interest-rate feedback rules in apparently different ways over time and across countries, with the literature distinguishing, in particular, between active and passive monetary policies. We address the transitional-dynamics implications of these different types of monetary policy, in the context of a monetary growth model of R&D and physical capital accumulation. In this setup, well-behaved saddle-path transitional dynamics occurs under both active and (sufficiently) passive monetary policies – a relevant result little emphasised in the literature. We carry out our study from the perspective of a one-off shift in the structural stance of monetary policy (i.e., a change in the long-run inflation target) and a one-off shift in real industrial policy (i.e., an R&D or a manufacturing subsidy). We uncover a new channel through which institutional factors (the characteristics of the monetary-policy rule) influence the economies' convergence behaviour and through which monetary authorities may leverage (transitional) growth triggered by structural shifts.

Keywords: Cash-in-advance; Endogenous growth; Feedback rule; Inflation; Monetary policy; Physical capital; R&D; Transitional dynamics (search for similar items in EconPapers)
JEL-codes: E41 O31 O41 (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Endogenous Growth and Monetary Policy: How Do Interest-Rate Feedback Rules Shape Nominal and Real Transitional Dynamics? (2020) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:138:y:2023:i:c:s0261560623001407

DOI: 10.1016/j.jimonfin.2023.102939

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