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… 
1 Citations

Figures, Tables, and Topics from this paper

The Equity Premium, Long-Run Risks to R-Star, and Asymmetric Optimal Monetary Policy
With the Federal Reserve undergoing a serious review of its strategy, this paper provides a timely analysis that focuses on longer-run themes and monetary policy's potential influence. If we take the


Speed Limit Policies: The Output Gap and Optimal Monetary Policy
In a standard New Keynesian model, a myopic central bank concerned with stabilizing inflation and changes in the output gap will implement a policy under discretion that replicates the optimal,
The Monetary Instrument Matters
This paper revisits the debate over the money supply versus the interest rate as the instrument of monetary policy. Using a dynamic stochastic general equilibrium framework, the authors examine the
Inflation Risk and Optimal Monetary Policy
This paper shows that the optimal monetary policies recommended by New Keynesian models still imply a large amount of inflation risk. We calculate the term structure of inflation uncertainty in New
Why Is Inflation Low When Productivity Growth Is High
Inflation has been low when productivity growth has been high. This occurs because the Federal Reserve has not adjusted nominal income growth in response to changes in productivity growth, implying
Changing Technology Trends, Transition Dynamics, and Growth Accounting
The technology growth trends that underlie recent productivity patterns are investigated in a framework that incorporates investment-specific technological progress. Structural-break tests and
Learning and Shifts in Long-Run Productivity Growth
Shifts in the long-run rate of productivity growth are difficult, in real time, to distinguish from transitory fluctuations. We analyze the evolution of forecasts of long-run productivity growth
What Happens When the Technology Growth Trend Changes?: Transition Dynamics, Capital Growth and the 'New Economy'
This paper considers transition dynamics associated with a change in the rate of technological progress, using a general equilibrium framework that incorporates stochastic technology growth trends.
A long-standing area of research and policy interest is the construction of a measure of monetary policy stance. One measure that has been proposed, as an alternative to indices that employ monetary
Errors in the measurement of the output gap and the design of monetary policy
We exploit data on historical revisions to real-time estimates of the output gap to examine the implications of measurement error for the design of monetary policy, using the Federal Reserve's model