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Output Stabilization And Real Rigidity

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  • GEORGE J. BRATSIOTIS
  • CHRISTOPHER MARTIN

Abstract

We use a simple model to show that there is a positive relationship between monetary policy preferences for output stability, real rigidity and macroeconomic persistence. This result has two non‐trivial implications. First it suggests that output stabilization may be a less desirable policy target since it generates real rigidity and macroeconomic persistence. Second, it provides a theoretical rationale as to why models in which monetary policy does not respond to output have been typically unable to replicate the persistence observed in real data.

Suggested Citation

  • George J. Bratsiotis & Christopher Martin, 2005. "Output Stabilization And Real Rigidity," Manchester School, University of Manchester, vol. 73(6), pages 728-736, December.
    • Handle: RePEc:bla:manchs:v:73:y:2005:i:6:p:728-736
    DOI: 10.1111/j.1467-9957.2005.00474.x
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    References listed on IDEAS

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    Cited by:

    1. Thoma, Mark, 2008. "Structural change and lag length in VAR models," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 965-976, September.

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