Economics, Econometrics and Finance
4 years ago

Capital accumulation in DSGE models reshapes monetary policy and economic dynamics.

SSRN Electronic Journal
Assessing DSGE Models with Capital Accumulation and Indeterminacy
Vadim Khramov

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DSGE models with capital accumulation can lead to long-lasting effects on economic variables due to the nature of capital. U.S. data from 1960 to 2008 suggests that monetary policy's response to inflation is lower than previously thought, influenced by real interest rates in the production sector. Models with indeterminacy perform better than those without. This research could change previous understandings and has important implications for monetary policy.