Endogenous growth and monetary policy: How do interest-rate feedback rules shape nominal and real transitional dynamics?

• Type: Article in International Scientific Journal
• Date: 2023

Authors

Pedro Rui Mazeda Gil (Author) FEP; Iglésias, G (Author) Other; Guimaraes, L (Author) Other

Journal

Title: Journal of International Money and Finance

Vol. 138

ISSN: 0261-5606

Publisher: Elsevier

Indexing

ISI Web of Knowledge - 1 Citation

Scopus - 1 Citation

Other information

Authenticus ID: P-00Y-X7Z

DOI: 10.1016/j.jimonfin.2023.102939

Abstract (EN): Monetary authorities have followed interest-rate feedback rules in apparently different ways over time and across countries, with the literature distinguishing, in particular, between active and passive monetary policies. We address the transitional-dynamics implications of these different types of monetary policy, in the context of a monetary growth model of R&D and physical capital accumulation. In this setup, well-behaved saddle-path transitional dynamics occurs under both active and (sufficiently) passive monetary policies - a relevant result little emphasised in the literature. We carry out our study from the perspective of a one-off shift in the structural stance of monetary policy (i.e., a change in the long-run inflation target) and a one-off shift in real industrial policy (i.e., an R&D or a manufacturing subsidy). We uncover a new channel through which institutional factors (the characteristics of the monetary-policy rule) influence the economies' convergence behaviour and through which monetary authorities may leverage (transitional) growth triggered by structural shifts.

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 20