Endogenous growth and monetary policy: How do interest-rate feedback rules shape nominal and real transitional dynamics?

Pedro Mazeda Gil, Gustavo Iglésias, Luís Guimarães

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)
35 Downloads (Pure)

Abstract

Monetary authorities have followed interest-rate feedback rules in apparently different ways over time and across countries, with the literature distinguishing, in particular, between active and passive monetary policies. We address the transitional-dynamics implications of these different types of monetary policy, in the context of a monetary growth model of R&D and physical capital accumulation. In this setup, well-behaved saddle-path transitional dynamics occurs under both active and (sufficiently) passive monetary policies – a relevant result little emphasised in the literature. We carry out our study from the perspective of a one-off shift in the structural stance of monetary policy (i.e., a change in the long-run inflation target) and a one-off shift in real industrial policy (i.e., an R&D or a manufacturing subsidy). We uncover a new channel through which institutional factors (the characteristics of the monetary-policy rule) influence the economies' convergence behaviour and through which monetary authorities may leverage (transitional) growth triggered by structural shifts.
Original languageEnglish
Article number102939
JournalJournal of International Money and Finance
Volume138
Early online date31 Aug 2023
DOIs
Publication statusPublished - Nov 2023

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