Monetary policy and growth with trend inflation and financial frictions

Lorena Olmos and Marcos Sanso Frago

MPRA Paper from University Library of Munich, Germany

Abstract: This paper studies the effects that conventional and unconventional monetary policies generate when endogenous growth, trend inflation and financial frictions are considered in a New Keynesian macroeconomic model. Financial variables play a key role in the determination of the steady state growth rate, given the value of the trend inflation. Calibrating the model following Gertler and Karadi (2011), long-run growth rate, welfare, normalized investment and financial wealth are maximized when trend inflation is 1.7% while leverage, external finance premium and marginal gain of the financial intermediaries are minimized. Finally, unconventional policies could extend their impact to the long run.

Keywords: New Keynesian DSGE models; endogenous growth; financial frictions; trend inflation; unconventional monetary policy (search for similar items in EconPapers)
JEL-codes: E31 E44 E58 O42 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-cba, nep-dge, nep-fdg, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:54606

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