Taylor-Type Rules And Permanent Shifts In Productivity Growth

  title={Taylor-Type Rules And Permanent Shifts In Productivity Growth},
  author={William Gavin and Benjamin D. Keen and Michael R. Pakko},
This paper examines the impact of a permanent shock to the productivity growth rate in a New Keynesian model when the central bank does not immediately adjust its policy rule to that shock. Our results show that inflation and productivity growth are negatively correlated at business cycle frequencies when the central bank follows a Taylor-type policy rule that targets the output gap. We then demonstrate that inflation is more stable after a permanent productivity shock when monetary policy… 
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