Hysteresis in Potential Ourtput and Monetary Policy
Journal
Scottish Journal of Political Economy
ISSN
0036-9292
ISSN-Digital
1467-9485
Type
journal article
Date Issued
2014-09
Author(s)
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 New Keynesian 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.
Language
English
Keywords
Monetary Policy
Hysteresis
Potential Output
Output Gap Mismeasurement
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Wiley-Blackwell
Publisher place
Oxford
Volume
61
Number
4
Start page
371
End page
396
Pages
26
Subject(s)
Division(s)
Eprints ID
233756
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13_28_Kienzler et al_Hysteresis in Potential Output and Monetary Policy.pdf
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Format
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