Short- and Long-Run Tradeoff Monetary Easing

36 Pages Posted: 25 Nov 2015

See all articles by Koki Oikawa

Koki Oikawa

Waseda University

Kozo Ueda

Waseda University; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

Date Written: November 2015

Abstract

In this study, we illustrate a tradeoff between the short-run positive and long-run negative effects of monetary easing by using a dynamic stochastic general equilibrium model embedding endogenous growth with creative destruction and sticky prices due to menu costs. While a monetary easing shock increases the level of consumption because of price stickiness, it lowers the frequency of creative destruction (i.e., product substitution) because inflation reduces the reward for innovation via menu cost payments. The model calibrated to the U.S. economy suggests that the adverse effect dominates in the long run.

Keywords: Schumpeterian, new Keynesian, non-neutrality of money

JEL Classification: E31, E58, O33, O41

Suggested Citation

Oikawa, Koki and Ueda, Kozo, Short- and Long-Run Tradeoff Monetary Easing (November 2015). Available at SSRN: https://ssrn.com/abstract=2694859 or http://dx.doi.org/10.2139/ssrn.2694859

Koki Oikawa

Waseda University ( email )

1-104 Totsukamachi, Shinjuku-ku
tokyo, 169-8050
Japan

Kozo Ueda (Contact Author)

Waseda University ( email )

1-104 Totsukamachi, Shinjuku-ku
tokyo, 169-8050
Japan

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
20
Abstract Views
363
PlumX Metrics