Trend growth, unemployment and optimal monetary policy

Wolfgang Lechthaler and Mewael F. Tesfaselassie

No 2003, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: We analyze the implications of changes in the trend growth rate for optimal monetary policy in the presence of search and matching unemployment. We show that trend growth in itself does not generate a trade-off for the monetary authority, but that it interacts importantly with the inefficiencies stemming from the labor market. Higher trend growth exacerbates the inefficiencies of the labor market and therefore calls for larger deviations from price stability.

Keywords: trend growth; trend inflation; unemployment (search for similar items in EconPapers)
JEL-codes: E12 E24 E52 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:2003

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