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Short- and Long-Run Tradeoff Monetary Easing

Koki Oikawa () and Kozo Ueda

No 58, UTokyo Price Project Working Paper Series from University of Tokyo, Graduate School of Economics

Abstract: In this study, we illustrate a tradeoff between the short-run positive and long-run negative effects of monetary easing by using a dynamic stochastic general equilibrium model embedding endogenous growth with creative destruction and sticky prices due to menu costs. While a monetary easing shock increases the level of consumption because of price stickiness, it lowers the frequency of creative destruction (i.e., product substitution) because inflation reduces the reward for innovation via menu cost payments. The model calibrated to the U.S. economy suggests that the adverse effect dominates in the long run.

Keywords: Schumpeterian; new Keynesian; non-neutrality of money (search for similar items in EconPapers)
JEL-codes: E31 E58 O33 O41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
Date: 2015-11
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