Supply-side effects of monetary policy and the central bank’s objective function
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Working Paper
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2008
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This paper considers a new Keynesian model with the cost channel
and evaluates the supply-side e§ects of monetary policy on macroeco nomic volatility and welfare, taking into account the endogenous na ture of the objective function of monetary authorities. When the cost
channel matters, supply-side e§ects of monetary policy depend on the
degree of interest rate pass-through and the degree of price rigidity.
Numerical results show that the welfare consequences of an increase
in the degree of interest rate pass-through are independent of how the
central bank speciÖes its loss function. By contrast, the welfare conse quences of an increase in price rigidity depend critically on the nature
of the loss function considered. Macroeconomic volatility as a func tion of the pass-through is almost independent of the central bankís
loss function. In contrast, this volatility as a function of the degree of
price rigidity depends more on the nature of the loss function.
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Membros da banca
Área do Conhecimento CNPQ
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