Economics, Econometrics and Finance
4 years ago
Capital accumulation in DSGE models reshapes monetary policy and economic dynamics.
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Paper Summary
DSGE models with capital accumulation can lead to long-lasting effects on economic variables due to the nature of capital. The response of monetary policy to inflation is lower than previously thought, as capital affects real interest rates. Models with indeterminacy perform better than those without. This research could change our understanding of monetary policy.