Journal Article
A Note on Trend Growth, Unemployment and Optimal Monetary Policy
Authors
Publication Date
DOI
JEL Classification
E24
E52
Key Words
Related Topics
Business Cycle
Business Cycle World
Growth
Labor Market
Monetary Policy
We analyze the implications of trend growth for optimal monetary policy in the
presence of search and matching unemployment. We show that trend growth inter-
acts importantly with the inefficiencies stemming from the labor market. Higher
trend growth exacerbates the inefficiencies of the labor market and therefore calls for
larger deviations from price stability. Our analysis implies that lower trend growth
reduces not only the level but also the optimal volatility of the nominal interest
rate.
