Economics at your fingertips  

Aggregate Supply in the United States: Recent Developments and Implications for the Conduct of Monetary Policy

Dave Reifschneider, William Wascher and David Wilcox ()

IMF Economic Review, 2015, vol. 63, issue 1, 71-109

Abstract: The recent financial crisis and ensuing recession appear to have put the productive capacity of the economy on a lower and shallower trajectory than the one that seemed to be in place prior to 2007. Using a version of an unobserved components model introduced by Fleischman and Roberts, we estimate that potential GDP in late 2014 was about 7 percent below the trajectory it appeared to be on prior to 2007. We argue that a significant portion of the recent damage to the supply side of the economy plausibly was endogenous to the weakness in aggregate demand. Endogeneity of supply with respect to demand provides a strong motivation for a vigorous policy response to a weakening in aggregate demand, and we present optimal-control simulations showing how monetary policy might respond to such endogeneity in the absence of other considerations. We then discuss how other considerations—such as increased risks of financial instability or inflation instability—could cause policymakers to exercise restraint in their response to cyclical weakness.

Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (47) Track citations by RSS feed

Downloads: (external link) Link to full text PDF (application/pdf) Link to full text HTML (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Aggregate supply in the United States: recent developments and implications for the conduct of monetary policy (2015) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/41308/PS2

Access Statistics for this article

More articles in IMF Economic Review from Palgrave Macmillan, International Monetary Fund
Bibliographic data for series maintained by Sonal Shukla ().

Page updated 2019-11-30
Handle: RePEc:pal:imfecr:v:63:y:2015:i:1:p:71-109