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Short- and long-run tradeoff of monetary easing

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  • Oikawa, Koki
  • Ueda, Kozo

Abstract

In this study, we illustrate a tradeoff between the short-run positive and long-run negative effects of monetary easing by using a dynamic stochastic general equilibrium model embedding endogenous growth with creative destruction and sticky prices due to menu costs. Although a monetary easing shock increases the level of consumption because of price stickiness, it lowers the frequency of creative destruction (i.e., product substitution) because inflation reduces the reward for innovation via menu cost payments. When calibrated to the U.S. economy, the model suggests that the adverse effect dominates in the long run.

Suggested Citation

  • Oikawa, Koki & Ueda, Kozo, 2019. "Short- and long-run tradeoff of monetary easing," Journal of the Japanese and International Economies, Elsevier, vol. 52(C), pages 189-200.
    • Handle: RePEc:eee:jjieco:v:52:y:2019:i:c:p:189-200
    DOI: 10.1016/j.jjie.2018.12.005
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    Cited by:

    1. Cozzi, Guido & Pataracchia, Beatrice & Pfeiffer, Philipp & Marco, Ratto, 2017. "How much Keynes and how much Schumpeter? An Estimated Macromodel of the US Economy," Working Papers 2017-01, Joint Research Centre, European Commission.
    2. Takatoshi Ito, 2021. "An Assessment of Abenomics: Evolution and Achievements," Asian Economic Policy Review, Japan Center for Economic Research, vol. 16(2), pages 190-219, July.
    3. Oikawa, Koki & Ueda, Kozo, 2018. "The optimal inflation rate under Schumpeterian growth," Journal of Monetary Economics, Elsevier, vol. 100(C), pages 114-125.
    4. Cozzi, Guido & Pataracchia, Beatrice & Pfeiffer, Philipp & Ratto, Marco, 2021. "How much Keynes and how much Schumpeter?," European Economic Review, Elsevier, vol. 133(C).
    5. Arawatari, Ryo & Hori, Takeo & Mino, Kazuo, 2018. "On the nonlinear relationship between inflation and growth: A theoretical exposition," Journal of Monetary Economics, Elsevier, vol. 94(C), pages 79-93.

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    More about this item

    Keywords

    Schumpeterian; New Keynesian; Non-neutrality of money;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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