Short- and long-run tradeoff of monetary easing

Koki Oikawa and Kozo Ueda

Journal of the Japanese and International Economies, 2019, vol. 52, issue C, 189-200

Abstract: In this study, we illustrate a tradeoff between the short-run positive and long-run negative effects of monetary easing by using a dynamic stochastic general equilibrium model embedding endogenous growth with creative destruction and sticky prices due to menu costs. Although a monetary easing shock increases the level of consumption because of price stickiness, it lowers the frequency of creative destruction (i.e., product substitution) because inflation reduces the reward for innovation via menu cost payments. When calibrated to the U.S. economy, the model suggests that the adverse effect dominates in the long run.

Keywords: Schumpeterian; New Keynesian; Non-neutrality of money (search for similar items in EconPapers)
JEL-codes: E31 E58 O33 O41 (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Short- and long-run tradeoff monetary easing (2015)
Working Paper: Short- and Long-Run Tradeoff Monetary Easing (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jjieco:v:52:y:2019:i:c:p:189-200

DOI: 10.1016/j.jjie.2018.12.005

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