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Trend Growth and Robust Monetary Policy

Author

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  • Hasui Kohei

    (Faculty of Economics, Matsuyama University, Matsuyama, Japan)

Abstract

Recent monetary policy studies have shown that the trend productivity growth has non-trivial implications for monetary policy. This paper investigates how trend growth alters the effect of model uncertainty on macroeconomic fluctuations by introducing a robust control problem. We show that an increase in trend growth reduces the effect of the central bank’s model uncertainty and, hence, mitigates the large macroeconomic fluctuations. Moreover, the increase in trend growth contributes to bringing the economy into determinacy regions even if larger model uncertainty exists. These results indicate that trend growth contributes to stabilizing the economy in terms of both variance and determinacy when model uncertainty exists.

Suggested Citation

  • Hasui Kohei, 2021. "Trend Growth and Robust Monetary Policy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 21(2), pages 449-472, June.
  • Handle: RePEc:bpj:bejmac:v:21:y:2021:i:2:p:449-472:n:5
    DOI: 10.1515/bejm-2020-0133
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    More about this item

    Keywords

    model uncertainty; robust monetary policy; trend growth;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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