Monetary Policy and Hysteresis in Potential Output

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Monetary Policy and Hysteresis in Potential Output

Kienzler, Daniel; Schmid, Kai Daniel
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URI: http://nbn-resolving.de/urn:nbn:de:bsz:21-opus-67993
http://hdl.handle.net/10900/48000
Dokumentart: WorkingPaper
Date: 2013
Source: University of Tübingen Working Papers in Economics and Finance ; 55
Language: English
Faculty: 6 Wirtschafts- und Sozialwissenschaftliche Fakultät
Department: Wirtschaftswissenschaften
DDC Classifikation: 330 - Economics
Keywords: Geldpolitik
Other Keywords:
Monetary Policy , Hysteresis , Potential Output , Output Gap Mismeasurement
License: http://tobias-lib.uni-tuebingen.de/doku/lic_mit_pod.php?la=de http://tobias-lib.uni-tuebingen.de/doku/lic_mit_pod.php?la=en
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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.

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