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Optimal Operational Monetary Policy Rules in an Endogenous Growth Model: a calibrated analysis

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Author Info
Hiroki Arato () (Japan Society for the Promotion of Science and Graduate School of Economics, Kyoto University)

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Abstract

This paper constructs an endogenous growth New Keynesian model and considers growth and welfare effect of Taylor-type (operational) monetary policy rules. The Ramsey equilibrium and optimal operational monetary policy rule is also computed. In the calibrated model, the Ramseyoptimal volatility of inflation rate is smaller than that in standard exogenous growth New Keynesian model with physical capital accumulation. Optimal operational monetary policy rule makes nominal interest rate respond strongly to inflation and mutely to real activity, as in standard New Keynesian model. Growth-maximizing operational monetary policy is not identical to optimal operational monetary policy. Welfare cost of responding to real activity is two or three times larger than that of exogenous growth New Keynesian model.

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File URL: http://www.kier.kyoto-u.ac.jp/DP/DP663.pdf
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Publisher Info
Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 663.

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Length: 26pages
Date of creation: Jan 2009
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Handle: RePEc:kyo:wpaper:663

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Related research
Keywords: Monetary policy; Sticky price; Endogenous growth;

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Find related papers by JEL classification:
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
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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