Nonlinear Monetary Policy Tradeoffs

Mario Forni, Luca Sala, Luca Gambetti and Davide Debortoli

No 1404, Working Papers from Barcelona School of Economics

Abstract: We measure the inflation-unemployment tradeoff associated with monetary easing and tightening, during booms and recessions, using a novel nonlinear Proxy-SVAR approach. We find evidence of significant nonlinearities for the U.S. economy (1973:M1 – 2019:M6): stimulating economic activity during recessions is associated with minimal costs in terms of inflation, and reducing inflation during booms delivers small costs in terms of unemployment. These results can be rationalized by a simple model with downward nominal wage rigidities, which is also used to assess the validity of our empirical approach.

Keywords: inflation-unemployment tradeoff; monetary policy; proxy- SVAR.; structural VAR models (search for similar items in EconPapers)
JEL-codes: C32 E32 (search for similar items in EconPapers)
Date: 2023-09
New Economics Papers: this item is included in nep-cba, nep-ets, nep-ger and nep-mon
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:1404

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