Output hysteresis and optimal monetary policy
Federal Reserve Bank of Boston; University of California, Davis
New Keynesian model with Schumpeterian endogenous growth through R&D investment and creative destruction, featuring staggered wage setting (Calvo), monopolistically competitive intermediate goods sectors, and innovation by entrepreneurs
final goods firms: perfect competition with CES aggregation; intermediate goods firms: monopolistic competition with limit pricing; entrepreneurs: invest in R&D to innovate
Table 2, Figure 2
Optimal discretionary policy (MPE) at ZLB - permanent output gap of -4.05% due to hysteresis bias