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Endogenous Growth and Monetary Policy: How Do Interest-Rate Feedback Rules Shape Nominal and Real Transitional Dynamics?

Gustavo Iglésias and Pedro Gil ()

Working Papers from Banco de Portugal, Economics and Research Department

Abstract: Monetary authorities have followed interest-rate feedback rules in apparently different ways over time and across countries. The literature distinguishes, in particular, between active and passive monetary policies in this regard. We address the nominal and real transitional-dynamics implications of these different types of monetary policy, in the context of a monetary growth model of R&D and physical capital accumulation. In this setup, well-behaved transitional dynamics occurs under both active and passive monetary policies. We carry out our study from three perspectives: the convergence behaviour of catching-up economies; a structural monetary-policy shock (i.e., a change in the long-run inflation target); and real industrialpolicy shocks (i.e., a change in R&D subsidies or in manufacturing subsidies). We uncover a new channel through which institutional factors (the characteristics of the monetary-policy rule) influence the economies’ convergence behaviour and through which monetary authorities may leverage (transitional) growth triggered by structural shocks.

JEL-codes: E41 O31 O41 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-cba, nep-fdg, nep-gro, nep-mac, nep-mon, nep-opm and nep-sbm
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Persistent link: https://EconPapers.repec.org/RePEc:ptu:wpaper:w202003

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