Working Paper: NBER ID: w14510
Authors: Malin Adolfson; Stefan Lasen; Jesper Lind; Lars E.O. Svensson
Abstract: 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.
Keywords: No keywords provided
JEL Codes: E52; E58; F33; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Monetary policy (E52) | Transmission of shocks (F42) |
| Definition of potential output (E23) | Tradeoff between CPI inflation and output gap stabilization (E31) |
| Monetary policy (E52) | CPI inflation (E31) |
| Monetary policy (E52) | Output gap (E23) |