Optimal monetary policy in a New Keynesian model with endogenous growth

Annicchiarico, B. and Rossi, L. (2013) Optimal monetary policy in a New Keynesian model with endogenous growth. Journal of Macroeconomics, 38 (Part B). pp. 274-285. ISSN 0164-0704

Abstract

We study optimal monetary policy in a New Keynesian (NK) model with endogenous growth and knowledge spillovers external to each firm. We find that, in contrast with the standard NK model, the Ramsey dynamics implies deviation from full inflation targeting in response to technology and government spending shocks, while the optimal operational rule is backward looking and responds to inflation and output deviations from their long-run levels.