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Technology Persistence and Monetary Policy

Author

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  • Pancrazi, Roberto

    (Department of Economics, University of Warwick)

  • Vukotic, Marija

    (Department of Economics, University of Warwick)

Abstract

In this paper, by using several statistical tools, we provide evidence of increased persistence of the U.S. total factor productivity. In a forward-looking model, agents’ optimal behavior depends on the autocorrelation structure of the exogenous shocks. Since many monetary models are driven by exogenous technology shocks, we study the implications of a change in technology persistence on monetary policy using a New Keynesian framework. First, we analytically derive the interaction between the TFP persistence, monetary policy parameters, and output gap and inflation. Second, we show that change in the TFP persistence a¤ects the optimal behavior of monetary policy.

Suggested Citation

  • Pancrazi, Roberto & Vukotic, Marija, 2013. "Technology Persistence and Monetary Policy," The Warwick Economics Research Paper Series (TWERPS) 1013, University of Warwick, Department of Economics.
  • Handle: RePEc:wrk:warwec:1013
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    File URL: https://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2013/twerp1013_vukotic.pdf
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    References listed on IDEAS

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    1. Domenico Giannone & Michele Lenza & Lucrezia Reichlin, 2008. "Explaining The Great Moderation: It Is Not The Shocks," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 621-633, 04-05.
    2. 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.
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    4. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," The Quarterly Journal of Economics, Oxford University Press, vol. 115(1), pages 147-180.
    5. Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, vol. 97(3), pages 586-606, June.
    6. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : II. New directions," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 309-341.
    7. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-1370, November.
    8. Jouchi Nakajima, 2011. "Time-Varying Parameter VAR Model with Stochastic Volatility: An Overview of Methodology and Empirical Applications," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 29, pages 107-142, November.
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    10. Zheng Liu & Daniel Waggoner & Tao Zha, 2009. "Asymmetric Expectation Effects of Regime Shifts in Monetary Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(2), pages 284-303, April.
    11. Boivin, Jean, 2006. "Has U.S. Monetary Policy Changed? Evidence from Drifting Coefficients and Real-Time Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(5), pages 1149-1173, August.
    12. Pancrazi, Roberto, 2014. "How beneficial was the Great Moderation after all?," Journal of Economic Dynamics and Control, Elsevier, vol. 46(C), pages 73-90.
    13. Giorgio E. Primiceri, 2005. "Time Varying Structural Vector Autoregressions and Monetary Policy," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 821-852.
    14. Christopher A. Sims & Tao Zha, 2006. "Were There Regime Switches in U.S. Monetary Policy?," American Economic Review, American Economic Association, vol. 96(1), pages 54-81, March.
    15. Marc P. Giannoni, 2010. "Optimal Interest-Rate Rules in a Forward-Looking Model, and Inflation Stabilization versus Price-Level Stabilization," NBER Working Papers 15986, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Pancrazi, Roberto, 2015. "The heterogeneous Great Moderation," European Economic Review, Elsevier, vol. 74(C), pages 207-228.
    2. Pancrazi, Roberto, 2014. "How beneficial was the Great Moderation after all?," Journal of Economic Dynamics and Control, Elsevier, vol. 46(C), pages 73-90.
    3. Curatola, Giuliano & Donadelli, Michael & Grüning, Patrick, 2015. "Matching the BRIC equity premium: A structural approach," Emerging Markets Review, Elsevier, vol. 22(C), pages 65-75.
    4. Philip Arestis & Michail Karoglou & Kostas Mouratidis, 2016. "Monetary Policy Preferences of the EMU and the UK," Manchester School, University of Manchester, vol. 84(4), pages 528-550, July.

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