Monetary policy shocks have lasting positive impact on economy and welfare
The article explores how monetary policy affects the economy in the short term. By using a search-theoretic model, the researchers show that injecting money into the system can have lasting positive effects on output, prices, and overall well-being. They found that negative monetary shocks have a bigger impact than positive ones, and economies with larger shocks experience more significant responses. Additionally, the level of inflation in an economy influences how effective monetary policy shocks are. Higher inflation levels lead to more immediate effects but smaller long-term impacts.