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Taylor Rules, Long-Run Growth and Real Uncertainty

Author

Listed:
  • Barbara Annicchiarico

    (Department of Economics, University of Rome Tor Vergata.)

  • Lorenza Rossi

    (Department of Economics and Management, University of Pavia)

Abstract

We study the effects of real uncertainty on long-run growth under different Taylor-type rules. We find a non-negligible relationship between real uncertainty and growth, which depends on the source of real uncertainty as well as the type of the Taylor rule considered. Importantly, when uncertainty is due to investment specific shocks, it is highly detrimental for growth, unless the Central Bank follows a strong inflation targeting rule. Furthermore, we find that in the presence of real uncertainty, there is a positive correlation between average growth and average inflation under pure inflation targeting regimes and negative otherwise.

Suggested Citation

  • Barbara Annicchiarico & Lorenza Rossi, 2015. "Taylor Rules, Long-Run Growth and Real Uncertainty," DEM Working Papers Series 100, University of Pavia, Department of Economics and Management.
  • Handle: RePEc:pav:demwpp:demwp0100
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    References listed on IDEAS

    as
    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Justiniano, Alejandro & Primiceri, Giorgio E. & Tambalotti, Andrea, 2010. "Investment shocks and business cycles," Journal of Monetary Economics, Elsevier, vol. 57(2), pages 132-145, March.
    3. Varvarigos, Dimitrios, 2008. "Inflation, variability, and the evolution of human capital in a model with transactions costs," Economics Letters, Elsevier, vol. 98(3), pages 320-326, March.
    4. Annicchiarico, Barbara & Pelloni, Alessandra & Rossi, Lorenza, 2011. "Endogenous growth, monetary shocks and nominal rigidities," Economics Letters, Elsevier, vol. 113(2), pages 103-107.
    5. Schmitt-Grohe, Stephanie & Uribe, Martin, 2007. "Optimal simple and implementable monetary and fiscal rules," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1702-1725, September.
    6. 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, June.
    7. Dotsey, Michael & Sarte, Pierre Daniel, 2000. "Inflation uncertainty and growth in a cash-in-advance economy," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 631-655, June.
    8. Ramey, Garey & Ramey, Valerie A, 1995. "Cross-Country Evidence on the Link between Volatility and Growth," American Economic Review, American Economic Association, vol. 85(5), pages 1138-1151, December.
    9. Keith Blackburn & Alessandra Pelloni, 2005. "Growth, cycles, and stabilization policy," Oxford Economic Papers, Oxford University Press, vol. 57(2), pages 262-282, April.
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    Citations

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    Cited by:

    1. Fasani, Stefano & Rossi, Lorenza, 2018. "Are uncertainty shocks aggregate demand shocks?," Economics Letters, Elsevier, vol. 167(C), pages 142-146.
    2. repec:zbw:bofrdp:2022_005 is not listed on IDEAS
    3. Ambrocio, Gene, 2020. "Inflationary household uncertainty shocks," Research Discussion Papers 5/2020, Bank of Finland.
    4. Arbex, Marcelo & Caetano, Sidney & Correa, Wilson, 2019. "Macroeconomic effects of inflation target uncertainty shocks," Economics Letters, Elsevier, vol. 181(C), pages 111-115.
    5. repec:zbw:bofrdp:2020_005 is not listed on IDEAS
    6. Marcin Bielecki, 2017. "Business cycles, innovation and growth: welfare analysis," Working Papers 2017-19, Faculty of Economic Sciences, University of Warsaw.
    7. Valeriu Nalban & Andra Smadu, 2022. "Uncertainty shocks and the monetary-macroprudential policy mix," Working Papers 739, DNB.
    8. Kumar, Abhishek & Mallick, Sushanta & Sinha, Apra, 2021. "Is uncertainty the same everywhere? Advanced versus emerging economies," Economic Modelling, Elsevier, vol. 101(C).

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    More about this item

    Keywords

    Taylor rules; Endogenous Growth; Real Uncertainty.;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models

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