Asymmetries in Monetary Policy

Rossi, Lorenza and Benigno, Pierpaolo (2021) Asymmetries in Monetary Policy. European Economic Review. ISSN 0014-2921 (In Press)

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Abstract

Nonlinearities embedded in the standard New-Keynesian model show that a welfare maximizing policymaker should behave in line with a contractionary bias, fearing more expansions in output and inflation rather than contractions. On the contrary, the aggregate-supply equation implies that any upward pressure coming from real marginal costs does not necessarily push up inflation. Once these two forces are combined in the optimal policy, an overall expansionary bias emerges. The nonlinearities of the AS equation combined with changes in volatility can be responsible for a flattening in the estimated linear Phillips curve.

Item Type:
Journal Article
Journal or Publication Title:
European Economic Review
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/2000/2002
Subjects:
ID Code:
160593
Deposited By:
Deposited On:
07 Oct 2021 14:20
Refereed?:
Yes
Published?:
In Press
Last Modified:
07 Oct 2021 14:20