Firm-specific capital and welfare

Tommy Sveen () and Lutz Weinke
Additional contact information
Lutz Weinke: Duke University

No 2006/04, Working Paper from Norges Bank

Abstract: What are the consequences for monetary policy design implied by the fact that price setting and investment takes typically place simultaneously at the firm level? To address this question we analyze simple (constrained) optimal interest rate rules in the context of a dynamic New Keynesian model featuring firm-speci.c capital accumulation as well as sticky prices and wages à la Calvo. We make the case for Taylor type rules. They are remarkably robust in the sense that their welfare implications do not appear to hinge neither on the speci.c assumptions regarding capital accumulation that are used in their derivation nor on the particular definition of natural output that is used to construct the output gap. On the other hand we find that rules prescribing that the central bank does not react to any measure of real economic activity are not robust in that sense.

Keywords: Monetary policy; Sticky prices; Aggregate investment (search for similar items in EconPapers)
JEL-codes: E22 E31 E52 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2006-04-18
New Economics Papers: this item is included in nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Firm-Specific Capital and Welfare (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:bno:worpap:2006_04

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