Growth or the Gap? Which Measure of Economic Activity Should be Targeted in Interest Rate Rules?
University of Notre Dame, NBER, and ifo
Medium-scale New Keynesian DSGE model with sticky prices and wages (Calvo), endogenous capital accumulation, habit formation, investment adjustment costs, variable capital utilization, trend productivity growth, trend inflation, and multiple sh
intermediate firms: monopolistic competition with Calvo pricing; final good firm: perfect competition; employment agency: competitive aggregator of differentiated labor
Table 6 p.29
Medium scale model with positive trend inflation of 2 percent annualized but no trend growth