Code for: A Note on Temporary Supply Shocks with Aggregate Demand Inertia
Principal Investigator(s): View help for Principal Investigator(s) Ricardo Caballero, MIT; Alp Simsek, Yale University
Version: View help for Version V1
| Name | File Type | Size | Last Modified |
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| Figures | 08/14/2022 01:41:PM | ||
| Matlab code | 08/14/2022 01:41:PM | ||
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application/pdf | 244.3 KB | 09/26/2022 10:30:AM |
Project Citation:
Caballero, Ricardo, and Simsek, Alp. Code for: A Note on Temporary Supply Shocks with Aggregate Demand Inertia. Nashville, TN: American Economic Association [publisher], 2023. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2023-05-19. https://doi.org/10.3886/E177541V1
Project Description
Summary:
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We study optimal monetary policy during temporary supply contractions when aggregate demand has inertia and the central bank is concerned about future constraints on expansionary policy. In this environment, it is optimal to run the economy hot until supply recovers. However, the policy does not remain loose throughout the low-supply phase. Overall, when the initial aggregate demand is low, the goal is to frontload the rate cuts to raise demand in anticipation of the recovery of supply. If inflation also has inertia, the central bank still overheats the economy during the low-supply phase but gradually cools it down over time.
Scope of Project
JEL Classification:
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E21 Macroeconomics: Consumption; Saving; Wealth
E32 Business Fluctuations; Cycles
E43 Interest Rates: Determination, Term Structure, and Effects
E44 Financial Markets and the Macroeconomy
E52 Monetary Policy
G12 Asset Pricing; Trading Volume; Bond Interest Rates
E21 Macroeconomics: Consumption; Saving; Wealth
E32 Business Fluctuations; Cycles
E43 Interest Rates: Determination, Term Structure, and Effects
E44 Financial Markets and the Macroeconomy
E52 Monetary Policy
G12 Asset Pricing; Trading Volume; Bond Interest Rates
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