Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/210118
Authors: 
Furlanetto, Francesco
Gelain, Paolo
Sanjani, Marzie Taheri
Year of Publication: 
2017
Series/Report no.: 
Working Paper 8/2017
Abstract: 
This paper investigates how the presence of financial frictions and financial shocks changes the definition and the estimated dynamics of the output gap in a New Keynesian model. Financial shocks absorb explanatory power from efficient labor supply shocks, thus changing radically the dynamics of the economy's efficient frontier. Despite their large impact on the output gap, financial factors affect the monetary policy trade-offs only to some extent. Nominal stabilization can be achieved at the cost of limited (but non-negligible) fluctuations in real economic activity. Finally, we discuss an alternative measure of the output gap (in deviation from the optimal equilibrium) that is a better measure of imbalances in the economy than the conventional output gap.
Subjects: 
financial frictions
output gap
monetary policy
JEL: 
E32
C51
C52
Persistent Identifier of the first edition: 
ISBN: 
978-82-7553-978-4
Creative Commons License: 
https://creativecommons.org/licenses/by-nc-nd/4.0/deed.no
Document Type: 
Working Paper
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