The Optimal Monetary Response to Technology Shocks

Peter Ireland

Economic Inquiry, 1997, vol. 35, issue 3, 451-63

Abstract: This paper develops a model in which both technology and monetary shocks are important sources of variation in aggregate output and employment. The model rationalizes a policy under which money responds actively to technology shocks. The welfare cost of adopting the constant money growth rule advocated by Milton Friedman rather than the optimal activist policy is small, however. Copyright 1997 by Oxford University Press.

Date: 1997
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