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A utility-based welfare criterion in a model with endogenous capital accumulation

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Rochelle M. Edge

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Abstract

This paper extends the utility-based welfare criterion developed by Rotemberg and Woodford (1997) and Woodford (2003) to a model with endogenous capital accumulation. The welfare criterion obtained for this model shares several features with the corresponding expressions that have been derived in simpler models without capital accumulation. In particular, a criterion can be specified such that welfare losses depend solely on quadratic functions of the model's variables, thus confirming that policy should be oriented toward stabilization of macroeconomic aggregates, rather than toward attaining particular levels of those aggregates. That said, an important difference that obtains in this case is that the composition of output directly affects welfare in the endogenous-capital model--a result that is not present in standard treatments.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2003-66.

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Date of creation: 2003
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Handle: RePEc:fip:fedgfe:2003-66

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Keywords: Welfare;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Katharine S. Neiss and Edward Nelson, 2001. "The Real Interest Rate Gap as an Inflation Indicator," Computing in Economics and Finance 2001 145, Society for Computational Economics.
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  2. Michael Woodford, 2001. "The Taylor Rule and Optimal Monetary Policy," American Economic Review, American Economic Association, vol. 91(2), pages 232-237, May. [Downloadable!] (restricted)
  3. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September. [Downloadable!] (restricted)
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  1. Matthias Paustian, 2004. "Can Wage and Price Stickiness Account for Sizeable Costs of Business Cycle Fluctuations?," Bonn Econ Discussion Papers bgse18_2004, University of Bonn, Germany. [Downloadable!]
  2. Yuki Teranishi, 2008. "Optimal Monetary Policy under Staggered Loan Contracts," IMES Discussion Paper Series 08-E-08, Institute for Monetary and Economic Studies, Bank of Japan. [Downloadable!]
  3. Boris Hofmann & Matthias Paustian, 2005. "The Persistence and Rigidity of wages and prices," Money Macro and Finance (MMF) Research Group Conference 2005 71, Money Macro and Finance Research Group. [Downloadable!]
  4. Ippei Fujiwara & Yuki Teranishi, 2007. "A Dynamic New Keynesian Life-Cycle Model: Societal Ageing, Demographics and Monetary Policy," IMES Discussion Paper Series 07-E-04, Institute for Monetary and Economic Studies, Bank of Japan. [Downloadable!]
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  5. Frank Hespeler, 2008. "Solution Algorithm to a Class of Monetary Rational Equilibrium Macromodels with Optimal Monetary Policy Design," Computational Economics, Springer, vol. 31(3), pages 207-223, April. [Downloadable!] (restricted)
  6. Jim Malley & Apostolis Philippopoulos & Ulrich Woitek, 2007. "To React or Not? Fiscal Policy, Volatility and Welfare in the EU-3," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  7. Tommy Sveen & Lutz Weinke, 2006. "Firm-specific capital and welfare," Working Paper 2006/04, Norges Bank. [Downloadable!]
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