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Firm-Specific Capital and Welfare

Author

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  • Tommy Sveen

    (Monetary Policy Department, Norges Bank)

  • Lutz Weinke

    (Department of Economics, Duke University and Institute for Advanced Studies, Vienna)

Abstract

What are the consequences for monetary policy design implied by the fact that price setting and investment typically take place simultaneously at the firm level? To address this question we analyze simple (constrained) optimal interest rate rules in the context of a dynamic New Keynesian model featuring firm-specific capital accumulation as well as sticky prices and wages a la Calvo. We make the case for Taylortype rules. They are remarkably robust in the sense that their welfare implications do appear to hinge neither on the specific assumptions regarding capital accumulation that are used in their derivation nor on the particular definition of natural output that is used to construct the output gap.

Suggested Citation

  • Tommy Sveen & Lutz Weinke, 2009. "Firm-Specific Capital and Welfare," International Journal of Central Banking, International Journal of Central Banking, vol. 5(2), pages 147-179, June.
    • Handle: RePEc:ijc:ijcjou:y:2009:q:2:a:5
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    References listed on IDEAS

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    1. Levin, Andrew T. & Williams, John C., 2003. "Robust monetary policy with competing reference models," Journal of Monetary Economics, Elsevier, vol. 50(5), pages 945-975, July.
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    24. David Altig & Lawrence Christiano & Martin Eichenbaum & Jesper Linde, 2011. "Firm-Specific Capital, Nominal Rigidities and the Business Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(2), pages 225-247, April.
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    Cited by:

    1. Christian Schoder, 2017. "An estimated Dynamic Stochastic Disequilibrium model of Euro-Area unemployment," Working Papers 1725, New School for Social Research, Department of Economics.
    2. Schoder, Christian, 2017. "Are Dynamic Stochastic Disequilibrium models Keynesian or neoclassical?," Structural Change and Economic Dynamics, Elsevier, vol. 40(C), pages 46-63.
    3. Christian Schoder, 2015. "A Keynesian Dynamic Stochastic Labor-Market Disequilibrium model for business cycle analysis," IMK Working Paper 157-2015, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.

    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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