Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/105986
Authors: 
Kienzler, Daniel
Schmid, Kai Daniel
Year of Publication: 
2013
Series/Report no.: 
IMK Working Paper 116
Abstract: 
We show that actively stabilizing economic activity plays a more prominent role in the conduct of monetary policy when potential output is subject to hysteresis. We augment a basic NewKeynesian model by hysteresis in potential output and contrast simulation outcomes of this extended model to the standard model. We find that considering hysteresis allows for a more realistic propagation of macroeconomic shocks and persistent movements in output after monetary shocks. Our central policy implication of active output gap stabilization arises from stability analyses and welfare considerations.
Subjects: 
Monetary Policy
Hysteresis
Potential Output
Output Gap Mismeasurement
JEL: 
E32
E50
E52
Document Type: 
Working Paper

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