Optimal monetary policy in a New Keynesian model with endogenous growth |
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| Affiliation: | 1. Bank of Finland;2. European Central Bank;1. Bank of Japan, Japan;2. Center for Social Systems Innovation, Kobe University, 2-1 Rokkodaicho, Nada Kobe, Hyogo 6570013, Japan;1. Rutgers University and NBER, USA;2. Federal Reserve Board, Mail Stop 20, 20th and C Streets NW, Washington, DC 20051, USA;3. Dartmouth University and NBER, USA;4. Federal Reserve Bank of Philadelphia, USA |
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| Abstract: | We study optimal monetary policy in a New Keynesian (NK) model with endogenous growth and knowledge spillovers external to each firm. We find that, in contrast with the standard NK model, the Ramsey dynamics implies deviation from full inflation targeting in response to technology and government spending shocks, while the optimal operational rule is backward looking and responds to inflation and output deviations from their long-run levels. |
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| Keywords: | Monetary policy Endogenous growth Ramsey problem Optimal simple rules |
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