Fontana, G orcid.org/0000-0002-8055-5326 and Veronese Passarella, M orcid.org/0000-0001-7652-5952 (2020) Unconventional Monetary Policies from Conventional Theories: Modern Lessons for Central Bankers. Journal of Policy Modeling, 42 (3). pp. 503-519. ISSN 0161-8938
Abstract
The aim of this paper is to provide a critical review of some recent developments in macroeconomics. We discuss the introduction of financial frictions in New Keynesian models, which is said to account for the increasing influence of financial markets, institutions and products in real-world economies. For this purpose, we compare the macro dynamics of a benchmark NCM-DSGE model with the behaviour of the same model augmented with a financial accelerator mechanism. Our simulation exercises show that the financial accelerator mechanism can be regarded as an effective, though indirect, way to account for hysteresis in potential output. A fundamental policy corollary follows that central banks should pursue financial stability, rather than price stability, and target current output growth, rather than output gap. Such an unconventional result is obtained by a simple macroeconomic amendment to an otherwise conventional NCM-DSGE model.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2020 The Society for Policy Modeling. Published by Elsevier Inc. All rights reserved. This is an author produced version of a paper published in Journal of Policy Modeling. Uploaded in accordance with the publisher's self-archiving policy. |
Keywords: | Monetary policy; Financial accelerator mechanism; DSGE; NCM; Hysteresis |
Dates: |
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Institution: | The University of Leeds |
Academic Units: | The University of Leeds > Faculty of Business (Leeds) > Economics Division (LUBS) (Leeds) |
Depositing User: | Symplectic Publications |
Date Deposited: | 27 Jan 2020 11:52 |
Last Modified: | 30 Jan 2022 01:38 |
Status: | Published |
Publisher: | Elsevier |
Identification Number: | 10.1016/j.jpolmod.2020.01.001 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:156054 |