Slow Post-Financial Crisis Recovery and Monetary Policy

Daisuke Ikeda and Takushi Kurozumi

No 347, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: Post-financial crisis recoveries tend to be slow and be accompanied by slowdowns in TFP and permanent losses in GDP. To prevent them, how should monetary policy be conducted? We address this issue by developing a model with endogenous TFP growth in which an adverse financial shock can induce a slow recovery. In the model, a welfare-maximizing monetary policy rule features a strong response to output, and the welfare gain from output stabilization is much larger than when TFP expands exogenously. Moreover, inflation stabilization results in a sizable welfare loss, while nominal GDP stabilization works well, albeit causing high interest-rate volatility.

JEL-codes: E52 O33 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2018-10-01
New Economics Papers: this item is included in nep-cba, nep-dge, nep-fdg, nep-mac and nep-mon
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https://www.dallasfed.org/~/media/documents/institute/wpapers/2018/0347.pdf Paper (application/pdf)
https://www.dallasfed.org/-/media/documents/institute/wpapers/2018/0347a.pdf Appendix (application/pdf)

Related works:
Journal Article: Slow Post-financial Crisis Recovery and Monetary Policy (2019)
Working Paper: Post-Crisis Slow Recovery and Monetary Policy (2014)
Working Paper: Post-Crisis Slow Recovery and Monetary Policy (2014)
Working Paper: Post-Crisis Slow Recovery and Monetary Policy (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddgw:347

DOI: 10.24149/gwp347

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