Supply shocks and the divine coincidence

Bae-Geun Kim

Economics Letters, 2016, vol. 145, issue C, 210-213

Abstract: Unlike the conventional view, Blanchard and Gali (2007) point out that supply shocks alone do not create a policy trade-off between stabilizing inflation and stabilizing the output gap. This paper shows that supply shocks can be a natural source of the trade-off by assuming that non-produced inputs are used in fixed proportions with output in the production process. The results can also be generalized to the case when the elasticity of substitution between non-produced inputs and labor is less than unity.

Keywords: Supply shocks; Divine coincidence; Substitutability of inputs (search for similar items in EconPapers)
JEL-codes: E31 E50 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:145:y:2016:i:c:p:210-213

DOI: 10.1016/j.econlet.2016.06.018

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