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Monetary policy trade-offs in an estimated open-economy DSGE model
Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies. Stockholm School of Economics, Sweden; NBER, United States.
2014 (English)In: Journal of Economic Dynamics and Control, ISSN 0165-1889, E-ISSN 1879-1743, Vol. 42, 33-49 p.Article in journal (Refereed) Published
Abstract [en]

This paper studies the trade-offs between stabilizing CPI inflation and alternative measures of the output gap in Ramses, the Riksbank's estimated dynamic stochastic general equilibrium (DSGE) model of a small open economy. Our main finding is that the trade-off between stabilizing CPI inflation and the output gap strongly depends on which concept of potential output in the output gap between output and potential output is used in the loss function. If potential output is defined as a smooth trend this trade-off is much more pronounced compared to the case when potential output is defined as the output level that would prevail if prices and wages were flexible.

Place, publisher, year, edition, pages
2014. Vol. 42, 33-49 p.
Keyword [en]
Optimal monetary policy, Instrument rules, Open-economy DSGE models, Output gap, Potential output
National Category
Economics
Identifiers
URN: urn:nbn:se:su:diva-105935DOI: 10.1016/j.jedc.2014.02.012ISI: 000336706400003OAI: oai:DiVA.org:su-105935DiVA: diva2:733189
Note

AuthorCount:4;

Available from: 2014-07-08 Created: 2014-07-08 Last updated: 2017-12-05Bibliographically approved

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