Hysteresis in Potential Ourtput and Monetary Policy

Item Type Journal paper
Abstract

We show that actively stabilizing economic activity plays a more prominent role in the conduct of monetary policy when potential output is subject to hysteresis. We augment a basic New Keynesian model by hysteresis in potential output and contrast simulation outcomes of this extended model to the standard model. We find that considering hysteresis allows for a more realistic propagation of macroeconomic shocks and persistent movements in output after monetary shocks. Our central policy implication of active output gap stabilization arises from stability analyses and welfare considerations.

Authors Kienzler, Daniel & Schmid, Kai D.
Journal or Publication Title Scottish Journal of Political Economy
Language English
Keywords Monetary Policy, Hysteresis, Potential Output, Output Gap Mismeasurement
Subjects business studies
HSG Classification contribution to scientific community
Refereed Yes
Date September 2014
Publisher Wiley-Blackwell
Place of Publication Oxford
Volume 61
Number 4
Page Range 371-396
Number of Pages 26
ISSN 0036-9292
ISSN-Digital 1467-9485
Publisher DOI 10.1111/sjpe.12050
Depositing User Dipl.oec. Daniel Kienzler
Date Deposited 19 Aug 2014 09:03
Last Modified 27 Feb 2016 15:25
URI: https://www.alexandria.unisg.ch/publications/233756

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Citation

Kienzler, Daniel & Schmid, Kai D. (2014) Hysteresis in Potential Ourtput and Monetary Policy. Scottish Journal of Political Economy, 61 (4). 371-396. ISSN 0036-9292

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https://www.alexandria.unisg.ch/id/eprint/233756
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