New study shows changing monetary policy can stabilize economy post-shock
The study looked at how changes in productivity growth affect inflation and economic stability. They found that when the central bank uses a specific policy rule (like the Taylor rule), inflation and productivity growth are linked during economic ups and downs. However, if the central bank focuses on output growth or price levels instead, inflation is more stable after a productivity shock. This means that following different rules can lead to less volatility in output and inflation after a productivity change.