Growth, Cycles and Stabilisation Policy
Keith Blackburn and
Alessandra Pelloni ()
Centre for Growth and Business Cycle Research Discussion Paper Series from Economics, The University of Manchester
This paper presents an analysis of the joint determination of growth and business cycles with the view to studying the long-run implications of short-term monetary stabilisation policy. The analysis is based on a simple stochastic growth model in which both real and nominal shocks have permanent effects on output due to nominal rigidities (wage contracts) and an endogenous technology (learning-by-doing). It is shown that there is a negative correlation between the mean and variance of output growth irrespective of the source of fluctuations. It is also shown that, in spite of this, there may exist a conflict between short-term stabilisation and long-term growth depending on the type of disturbance. Finally, it is shown that, from a welfare perspective, the optimal monetary policy is that policy which maximises long-run growth to the exclusion of stabilisation considerations.
Pages: 21 pages
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Journal Article: Growth, cycles, and stabilization policy (2005)
Working Paper: Growth, Cycles and Stabilisation Policy (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:man:cgbcrp:12
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