Monetary Policy Trade-Offs in an Estimated Open-Economy DSGE Model / Malin Adolfson, Stefan Laséen, Jesper Lindé, Lars E.O. Svensson.

Format:

Book

Author/Creator:

Adolfson, Malin.

Contributor:

National Bureau of Economic Research.

Laséen, Stefan.

Lindé, Jesper.

Svensson, Lars E.O.

Series:

Working Paper Series (National Bureau of Economic Research) no. w14510.

NBER working paper series no. w14510

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2008.

Summary:

This paper studies the transmission of shocks and the trade-offs between stabilizing CPI inflation and alternative measures of the output gap in Ramses, the Riksbank's empirical dynamic stochastic general equilibrium (DSGE) model of a small open economy. The main results are, first, that the transmission of shocks depends substantially on the conduct of monetary policy, and second, 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.

Notes:

Print version record

November 2008.