Trend growth and optimal monetary policy

Fabrizio Mattesini and Salvatore Nisticò

Journal of Macroeconomics, 2010, vol. 32, issue 3, 797-815

Abstract: This paper analyzes the optimal behavior of the Central Bank in an economy characterized by balanced growth. We show how trend-growth affects the dynamics of inflation, the preferences of a welfare-maximizing Central Bank and optimal monetary policy. In particular, we show that the optimal monetary policy response to cost-push shocks is not invariant to trend growth, and that countries with lower trend growth have substantially higher incentives to commit to simple rules, both from a welfare and price-stability perspectives.

Keywords: Trend; growth; Optimal; monetary; policy; Commitment (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:32:y:2010:i:3:p:797-815

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