Slow Post-Financial Crisis Recovery and Monetary Policy

Ikeda, Daisuke; Kurozumi, Takushi

doi:10.24149/gwp347

Cited by 5 publications

(3 citation statements)

References 34 publications

(93 reference statements)

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“…Because of the linearity assumption in the production function of endogenous growth model, our setup is analytically tractable. Annicchiarico and Pelloni (2016) study Ramsey policy and Ikeda and Kurozumi (2014) study the use of simple operational rules in an endogenous TFP growth setting away from the ZLB.…”

Section: Related Literaturementioning

confidence: 99%

Output hysteresis and optimal monetary policy

Garga

Singh

2021

Journal of Monetary Economics

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We analyze the implications for monetary policy when deficient aggregate demand can cause a permanent loss in potential output, a phenomenon termed as output hysteresis. In the model, incomplete stabilization of a temporary shortfall in demand reduces the return to innovation, thus reducing TFP growth and generating a permanent loss in output. Using a purely quadratic approximation to welfare under endogenous growth, we derive normative implications for monetary policy. Away from the zero lower bound (ZLB), optimal commitment policy sets interest rates to eliminate output hysteresis. A strict inflation targeting rule implements the optimal policy. However, when the nominal interest rate is constrained at the ZLB, strict inflation targeting is sub-optimal and admits output hysteresis. A new policy rule that targets output hysteresis returns the output to the pre-shock trend and approximates the welfare gains under optimal commitment policy. A central bank unable to commit to future policy actions suffers from hysteresis bias: it does not offset past losses in potential output.

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Section: Related Literaturementioning

confidence: 99%

Output hysteresis and optimal monetary policy

Garga

Singh

2021

Journal of Monetary Economics

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“…A second potential hypothesis is that the financial shock imposed by the crisis had a larger impact in more intangible‐intensive industries, possibly making access to capital for investment or market entry more difficult. Ikeda and Kurozumi (2018) suggest that financial shocks can lead to slowdowns in technology and knowledge adoption (innovation) that impact TFP growth negatively. They also argue that adoption of knowledge and technology slows during periods when the economy is operating below potential.…”

Section: The Industry Tfp Slowdownmentioning

confidence: 99%

Accounting for the slowdown in UK innovation and productivity

Goodridge

Haskel

2023

Economica

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This paper conducts a comprehensive sources‐of‐growth analysis for the UK market sector, 2000–19, using the latest ONS data, including new estimates of intangible investment, double deflated value‐added, and updated price indices, all constructed bottom‐up from data for 40 industries. The decomposition incorporates contributions from intangible assets, both capitalized and uncapitalized, in national accounts. Our main findings are that first, slowdowns in labour productivity are largest in more intangible‐, knowledge‐, technology‐ and digital‐intensive industries, using numerous definitions. Second, the labour productivity slowdown can be accounted for largely by a slowdown in ‘innovation’, where innovation is shorthand for contributions of intangible capital deepening and TFP growth. We show that: (a) the level of labour productivity in 2019 was 27 log points (31 percentage points) less than had it continued to grow at its 2000–7 rate; (b) reallocation of labour did not contribute to the slowdown; (c) capitalization of the full range of intangibles accounts for 5% of the slowdown; (d) 35% is accounted for by a slowdown in capital deepening (25% tangible, 10% intangible), and 78% by a slowdown in TFP growth; and (e) less than one‐tenth of the TFP slowdown can be accounted for by exceptionally fast growth pre‐crisis.

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“…1 1See Cerra and Saxena (2008), Reinhart and Rogoff (2009), Reinhart and Reinhart (2010), and Ikeda and Kurozumi (2018). …”

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confidence: 99%

The fiscal and monetary response to COVID‐19: What the Great Depression has – and hasn't – taught us

Selgin

2021

Economic Affairs

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Although some regard the New Deal of the 1930s as exemplifying an aggressive fiscal and monetary response to a severe economic crisis, the US fiscal and monetary policy responses to the COVID‐19 crisis have actually been far more substantial – and, so far, much more effective in reviving aggregate spending. Although many fear that these responses, and the large‐scale increase in bank reserves especially, must eventually cause unwanted inflation, the concurrent sharp decline in money's velocity has thus far more than offset any inflationary effects of money growth, while forward bond prices reflect a general belief that inflation will remain below 2 per cent for at least another decade. Notwithstanding the growth of the Fed's balance sheet, Fed authorities can always check inflation by sufficiently raising the interest return on bank reserves. Nonetheless, recent developments have heightened the risk of ‘fiscal dominance’ of monetary policy at some point in the future.

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Slow Post-Financial Crisis Recovery and Monetary Policy

Cited by 5 publications

References 34 publications

Output hysteresis and optimal monetary policy

Output hysteresis and optimal monetary policy

Accounting for the slowdown in UK innovation and productivity

The fiscal and monetary response to COVID‐19: What the Great Depression has – and hasn't – taught us

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