Slow Post-financial Crisis Recovery and Monetary Policy

Daisuke Ikeda and Takushi Kurozumi

American Economic Journal: Macroeconomics, 2019, vol. 11, issue 4, 82-112

Abstract: Post-financial crisis recoveries tend to be slow and accompanied by slowdowns in total factor productivity (TFP) and permanent losses in GDP. To prevent them, how should monetary policy be conducted? We address this issue by developing a model with endogenous TFP growth in which an adverse financial shock can induce a slow recovery. In the model, a welfare-maximizing monetary policy rule features a strong response to output, and the welfare gain from output stabilization is much larger than when TFP expands exogenously. Moreover, inflation stabilization results in a sizable welfare loss, while nominal GDP stabilization works well, albeit causing high interest rate volatility.

JEL-codes: E12 E23 E32 E43 E44 E52 G01 (search for similar items in EconPapers)
Date: 2019
Note: DOI: 10.1257/mac.20160048
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Citations: View citations in EconPapers (24)

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Related works:
Working Paper: Slow Post-Financial Crisis Recovery and Monetary Policy (2018)
Working Paper: Post-Crisis Slow Recovery and Monetary Policy (2014)
Working Paper: Post-Crisis Slow Recovery and Monetary Policy (2014)
Working Paper: Post-Crisis Slow Recovery and Monetary Policy (2014)
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