Optimal operational monetary policy rules in an endogenous growth model: a calibrated analysis

Hiroki Arato

MPRA Paper from University Library of Munich, Germany

Abstract: We construct an endogenous growth model with new Keynesian-type sticky prices and wages. In this model, monetary policy affects long-run output growth. We characterize the optimal operational monetary policy rule in this economy. We find that even though stabilization of output growth increases long-run output growth, the optimal monetary policy rule is the rule that makes interest rate respond to price and wage actively and output growth mutely, similar as in exogenous growth models. We also find that the optimal monetary policy rule virtually maximizes mean growth. These results suggest that although long-run growth is important for welfare, new Keynesian's claim that monetary policy should stabilize nominal variables is highly robust.

Keywords: Monetary policy; Sticky price and wage; Business cycle fluctuations; Productivity growth (search for similar items in EconPapers)
JEL-codes: E32 O41 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2008-05
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Related works:
Working Paper: Optimal Operational Monetary Policy Rules in an Endogenous Growth Model: a calibrated analysis (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:8547

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