Monetary Policy and Hysteresis in Potential Output

Daniel Kienzler and Kai Schmid

No 116-2013, IMK Working Paper from IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute

Abstract: We show that actively stabilizing economic activity plays a more prominent role in the conduct of monetary policy when potential output is subject to hysteresis. We augment a basic NewKeynesian model by hysteresis in potential output and contrast simulation outcomes of this extended model to the standard model. We find that considering hysteresis allows for a more realistic propagation of macroeconomic shocks and persistent movements in output after monetary shocks. Our central policy implication of active output gap stabilization arises from stability analyses and welfare considerations.

Keywords: Monetary Policy; Hysteresis; Potential Output; Output Gap Mismeasurement (search for similar items in EconPapers)
JEL-codes: E32 E50 E52 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2013
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.boeckler.de/pdf/p_imk_wp_116_2013.pdf (application/pdf)

Related works:
Working Paper: Monetary policy and hysteresis in potential output (2013)
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: https://EconPapers.repec.org/RePEc:imk:wpaper:116-2013

Access Statistics for this paper

More papers in IMK Working Paper from IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute Contact information at EDIRC.
Bibliographic data for series maintained by Sabine Nemitz ().