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Endogenous Growth, Monetary Shocks and Nominal Rigidities

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Abstract

We introduce endogenous growth in an otherwise standard NK model with staggered prices and wages. Some results follow: (i) monetary volatility negatively affects long-run growth; (ii) the relation between nominal volatility and growth depends on the persistence of the nominal shocks and on the Taylor rule considered; (iii) a Taylor rule with smoothing increases the negative effect of nominal volatility on mean growth.

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File URL: ftp://www.ceistorvergata.it/repec/rpaper/RP187.pdf
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Bibliographic Info

Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 187.

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Length: 13 pages
Date of creation: 08 Mar 2011
Date of revision: 08 Mar 2011
Handle: RePEc:rtv:ceisrp:187

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Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
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Web page: http://www.ceistorvergata.it
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Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
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Web: http://www.ceistorvergata.it

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Keywords: Growth; volatility; business cycle; monetary policy;

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References

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  1. Andrea Vaona, 2010. "Inflation and Growth in the Long Run: A New Keynesian Theory and Further Semiparametric Evidence," Working Papers, University of Verona, Department of Economics 09/2010, University of Verona, Department of Economics.
  2. Andrew Levin & Christopher J. Erceg & Dale W. Henderson, 1999. "Optimal Monetary Policy with Staggered Wage and Price Contracts," Computing in Economics and Finance 1999, Society for Computational Economics 1151, Society for Computational Economics.
  3. Ramey, Garey & Ramey, Valerie A, 1995. "Cross-Country Evidence on the Link between Volatility and Growth," American Economic Review, American Economic Association, American Economic Association, vol. 85(5), pages 1138-51, December.
  4. Smets, F. & Sahuc, J-G., 2007. "Differences in Interest Rate Policy at the ECB and the Fed: An Investigation with a Medium-Scale DSGE Model," Working papers, Banque de France 182, Banque de France.
  5. Barbara Annicchiarico & Luisa Corrado & Alessandra Pelloni, 2011. "Long‐Term Growth And Short‐Term Volatility: The Labour Market Nexus," Manchester School, University of Manchester, vol. 79(s1), pages 646-672, 06.
  6. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, MIT Press, vol. 1(5), pages 1123-1175, 09.
  7. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  8. Keith Blackburn & Alessandra Pelloni, 2005. "Growth, cycles, and stabilization policy," Oxford Economic Papers, Oxford University Press, vol. 57(2), pages 262-282, April.
  9. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, Elsevier, vol. 12(3), pages 383-398, September.
  10. Schmitt-Grohe, Stephanie & Uribe, Martin, 2004. "Solving dynamic general equilibrium models using a second-order approximation to the policy function," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 28(4), pages 755-775, January.
  11. de Hek, Paul & Roy, Santanu, 2001. "On Sustained Growth under Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(3), pages 801-13, August.
  12. Larry E. Jones & Rodolfo E. Manuelli & Henry E. Siu & Ennio Stacchetti, 2005. "Fluctuations in Convex Models of Endogenous Growth I: Growth Effects," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(4), pages 780-804, October.
  13. Evans, Lynne & Kenc, Turalay, 2003. "Welfare Cost Of Monetary And Fiscal Policy Shocks," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 7(02), pages 212-238, April.
  14. Tom Krebs, 2003. "Growth and Welfare Effects of Business Cycles in Economies with Idiosyncratic Human Capital Risk," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 846-868, October.
  15. Aghion, Philippe & Angeletos, George-Marios & Banerjee, Abhijit & Manova, Kalina, 2010. "Volatility and growth: Credit constraints and the composition of investment," Scholarly Articles 12490636, Harvard University Department of Economics.
  16. Sandra Steindl & Gunther Tichy, 2009. "Cycles and growth: an introduction," Empirica, Springer, Springer, vol. 36(2), pages 159-164, May.
  17. Dotsey, Michael & Sarte, Pierre Daniel, 2000. "Inflation uncertainty and growth in a cash-in-advance economy," Journal of Monetary Economics, Elsevier, Elsevier, vol. 45(3), pages 631-655, June.
  18. Blackburn, Keith & Pelloni, Alessandra, 2004. "On the relationship between growth and volatility," Economics Letters, Elsevier, Elsevier, vol. 83(1), pages 123-127, April.
  19. Aghion, Philippe & Angeletos, George-Marios & Banerjee, Abhijit & Manova, Kalina, 2010. "Volatility and growth: Credit constraints and the composition of investment," Journal of Monetary Economics, Elsevier, Elsevier, vol. 57(3), pages 246-265, April.
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Citations

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Cited by:
  1. Annicchiarico, Barbara & Rossi, Lorenza, 2013. "Optimal monetary policy in a New Keynesian model with endogenous growth," Journal of Macroeconomics, Elsevier, Elsevier, vol. 38(PB), pages 274-285.
  2. Paul Levine, 2012. "Policy focus: Monetary policy in an uncertain world: probability models and the design of robust monetary rules," Indian Growth and Development Review, Emerald Group Publishing, Emerald Group Publishing, vol. 5(1), pages 70-88, April.
  3. Annicchiarico Barbara & Pelloni Alessandra, 2011. "Productivity growth and volatility: How important are wage and price rigidities?," wp.comunite, Department of Communication, University of Teramo 0089, Department of Communication, University of Teramo.
  4. Olmos, Lorena & Sanso Frago, Marcos, 2014. "Monetary policy and growth with trend inflation and financial frictions," MPRA Paper 54606, University Library of Munich, Germany.
  5. Andrea Vaona, 2013. "Inflation gifts and endogenous growth through learning-by-doing," Working Papers, University of Verona, Department of Economics 09/2013, University of Verona, Department of Economics.

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