Monetary policy shocks and productivity measures in the G-7 countries

Evans, Charles L.; Santos, Fernando Teixeira dos

doi:10.1007/s10258-001-0004-6

Cited by 9 publications

(9 citation statements)

References 36 publications

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“…Thus, a positive investment shock increases output more than in the standard models without the endogenous technology margins, which helps our model generate a positive consumption response. Finally, monetary policy shocks induce positive comovement between measured productivity and inflation, consistent with evidence from Evans and dos Santos (2002).…”

Section: Introductionsupporting

confidence: 76%

“…A tightening of monetary policy increases the FFR and lowers the price level. Due to sticky prices, aggregate demand falls and the real rate rises, which discourages investment in physical capital and R&D. The decline in R&D and the endogenous component of TFP leads to a decline in TFP after a contractionary monetary policy shock, consistent with empirical evidence fromEvans and dos Santos (2002). Further, the drop in R&D lowers the trend component of TFP due to the endogenous growth channel.…”

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confidence: 73%

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Growth, Slowdowns, and Recoveries

Bianchi

Kung

2014

SSRN Journal

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; AbstractWe construct and estimate a model that features endogenous growth and technology diffusion. The spillover effects from research and development provide a link between business cycle fluctuations and long-term growth. Therefore, productivity growth is related to the state of the economy. Shocks to the marginal efficiency of investment explain the bulk of the low-frequency variation in growth rates. Transitory inflationary shocks lead to persistent declines in economic growth. During the Great Recession, technology diffusion dropped sharply, while long-term growth was not significantly affected. The opposite occurred during the 2001 recession. The growth mechanism induces positive comovement between consumption and investment.

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Section: Introductionsupporting

confidence: 76%

supporting

confidence: 73%

Growth, Slowdowns, and Recoveries

Bianchi

Kung

2014

SSRN Journal

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“…Thus, a positive investment shock increases output more than in the standard models without the endogenous growth and diffusion channels, which helps to generate a positive consumption response. Finally, monetary policy shocks induce positive comovement between measured productivity and inflation, consistent with evidence from Evans and dos Santos (2002). This paper makes two methodological contributions with respect to the existing literature.…”

Section: Introductionsupporting

confidence: 71%

“…A tightening of monetary policy increases the FFR and lowers the price level. Due to sticky prices, aggregate demand falls and the real rate rises, which discourages investment in physical capital and R&D. The decline in R&D and technology diffusion leads to a decline in TFP after a contractionary monetary policy shock, consistent with empirical evidence fromEvans and dos Santos (2002).…”

supporting

confidence: 71%

Growth, slowdowns, and recoveries

Bianchi

Kung

Morales

2019

Journal of Monetary Economics

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We construct and estimate a model that features endogenous growth and technology diffusion. The spillover effects from research and development provide a link between business cycle fluctuations and long-term growth. Therefore, productivity growth is related to the state of the economy. Shocks to the marginal efficiency of investment explain the bulk of the low-frequency variation in growth rates. Transitory inflationary shocks lead to persistent declines in economic growth. During the Great Recession, technology diffusion dropped sharply, while long-term growth was not significantly affected. The opposite occurred during the 2001 recession. The growth mechanism induces positive comovement between consumption and investment.

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“…First, if there is no initial misallocation, the 1 The failed invariance of aggregate TFP to demand shocks is also observed by Hall (1990). Cozier and Gupta (1993), Evans and dos Santos (2002), and Kim and Lim (2004) extend the analysis to Canada, the G-7 countries, and South Korea. We show that aggregate productivity in the U.S. is (unconditionally) procyclical for the period 1948-2020 and contracts after Romer and Romer (2004) monetary shocks.…”

Section: Introductionmentioning

confidence: 79%

The Supply-Side Effects of Monetary Policy

2021

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We propose a supply-side channel for the transmission of monetary policy. We show that in an economy with heterogeneous firms and endogenous markups, monetary shocks have first-order effects on aggregate productivity. If high-markup firms have lower pass-throughs than lowmarkup firms, as is consistent with the empirical evidence, then a monetary easing generates an endogenous positive "supply shock" that amplifies the positive "demand shock" on output. The result is a flattening of the Phillips curve. This effect is distinct from another mechanism discussed at length in the real rigidities literature: a monetary easing leads to a reduction in desired markups because of strategic complementarities in pricing. We derive a tractable fourequation dynamic model, disciplined by four sufficient statistics from the distribution of firms, and use it to show that a monetary easing generates a procyclical hump-shaped response in aggregate TFP and countercyclical dispersion in firm-level TFPR. In the data, in line with the model's predictions, we observe both procyclical aggregate productivity and reallocations to high-markup firms during expansions. A calibration using firm-level pass-throughs suggests that the supply-side channel is quantitatively as important as real rigidities, and amplifies both the impact and persistence of monetary shocks. Moreover, this channel becomes stronger, and the Phillips curve becomes flatter, with increases in industrial concentration.

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Monetary policy shocks and productivity measures in the G-7 countries

Cited by 9 publications

References 36 publications

Growth, Slowdowns, and Recoveries

Growth, Slowdowns, and Recoveries

Growth, slowdowns, and recoveries

The Supply-Side Effects of Monetary Policy

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