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Monetary policy with an endogenous capital stock when inflation is persistent

Abstract:

The paper presents a monetary policy model with an endogenous capital stock when a backward looking element in wage setting causes inflation persistence. We analyse how the endogeneity of the capital stock changes the macroeconomic dynamics with which policy interacts and its implications for optimal policy and time inconsistency. Capital stock endogeneity makes inflation more persistent in reduced form. This makes the optimal contemporaneous policy response to shocks more vigorous but the su...

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Publication status:
Published

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Publisher:
University of Oxford Publisher's website
Series:
Department of Economics Discussion Paper Series
Publication date:
2002-07-01
Paper number:
108
Keywords:
Pubs id:
1144311
Local pid:
pubs:1144311
Deposit date:
2020-12-15

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