Optimal Operational Monetary Policy Rules in an Endogenous Growth Model: a calibrated analysis

Hiroki Arato

No 663, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: This paper constructs an endogenous growth New Keynesian model and considers growth and welfare effect of Taylor-type (operational) monetary policy rules. The Ramsey equilibrium and optimal operational monetary policy rule is also computed. In the calibrated model, the Ramseyoptimal volatility of inflation rate is smaller than that in standard exogenous growth New Keynesian model with physical capital accumulation. Optimal operational monetary policy rule makes nominal interest rate respond strongly to inflation and mutely to real activity, as in standard New Keynesian model. Growth-maximizing operational monetary policy is not identical to optimal operational monetary policy. Welfare cost of responding to real activity is two or three times larger than that of exogenous growth New Keynesian model.

Keywords: Monetary policy; Sticky price; Endogenous growth (search for similar items in EconPapers)
JEL-codes: E31 E52 O41 (search for similar items in EconPapers)
Pages: 26pages
Date: 2009-01
New Economics Papers: this item is included in nep-cba, nep-fdg, nep-mac and nep-mon
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Working Paper: Optimal operational monetary policy rules in an endogenous growth model: a calibrated analysis (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:kyo:wpaper:663

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