Natural rates in the New Synthesis: Same old trouble?

Trautwein, Hans‐Michael; Zouache, Abdallah

doi:10.4337/ejeep.2009.02.07

Cited by 10 publications

(8 citation statements)

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“…The latter can be seen as 'the level of output in all sectors for which [. This definition is quite obscure, which allows Trautwein and Zouache (2009) to state that the natural rate of output is 'a virtual equilibrium' (Ibid. .…”

Section: Discussionmentioning

confidence: 99%

“…The relevance -or not -of the Wicksellian connection following Woodford's 2003 publication has been widely commented on, mainly because Woodford defined his approach to this marketing argument (Tamborini 2006b, Trautwein and Boianovsky 2010, Trautwein and Zouache 2009, Fontana 2006, Hoover 2004. At first sight, the Wicksellian connection with Woodford is not to be questioned if we consider the general thesis supported by his book.…”

Section: Woodford In Connection To Wicksell: Getting Married or Divormentioning

confidence: 99%

“…. Those two paths have been taken by recent literature: Trautwein and Zouache (2009), Trautwein and Boianovsky (2006b), Tamborini (2006b), Fontana (2006), Hoover (2004) and Laidler (2004). (Woodford 2003: 24-25) However, beforehand, he had claimed as well that 'it may be doubted whether Wicksellian theory can provide a basis for this kind of quantitative policy analysis in which a modern central banking must engage' (Woodford 2003: 5-6).…”

Section: Woodford In Connection To Wicksell: Getting Married or Divormentioning

confidence: 99%

“…According to Trautwein (2006bTrautwein ( , 2009) and Tamborini (2006b) the main source of divergence -not to say divorce -between Wicksell and Woodford relies on this concept of a natural rate of interest. While at the heart of their models, there is no clear and perfect insight into the way to define it.…”

Section: The Concept Of a Natural Rate Of Interestmentioning

confidence: 99%

See 3 more Smart Citations

Monetary Policy Rule in Theory and Practice

Barbaroux¹

2013

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This new volume sheds new light on current monetary issues, in particular the debate on monetary policymaking, by blending theoretical economic analysis, history of economics, and historical case studies. Throughout the book, we demonstrate to what extent monetary policy is -and has always been -featured by an internal (a price level goal for instance) vs external (exchange rate anchoring or financial disturbances) stability dilemma, in which the use of discretionary power is an indispensable tool to face it. This thesis is fully relevant with recent features of monetary policy study both in theory and in practice.A discretionary monetary policy refers to cases in which the central bank is free to change its policy actions or key instruments when the need arises, whilst a monetary policy rule can be defined as a commitment from (independent) central banks to reach one or several objective(s) by way of systematic policy actions. This book uses case studies from France and Sweden, and places them in the context of Keynes' argument from his 1923 'Tract on Monetary Reforms', to support the argument that the use of discretionary practices within a monetary policy rule (such as in the gold standard era) is the best approach. This book takes an innovative approach in combining a theoretical analysis (mainly the work of New Neoclassical Synthesis throughout Woodford's model) a history of economic thought analysis (based on the monetary works from Wicksell, Cassel and Keynes) and an historical study of central bank practices both in France (based on Bank of France archive materials) and in Sweden. The final section of the book explores the debate on monetary policy rule in light of the 2008 financial crisis. As such, the book provides a unique synthesis that will be of interest not only to scholars of history of economic thought and economic theory, but also to anyone with an interest in monetary economics and contemporary monetary policy.

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Section: Discussionmentioning

confidence: 99%

Section: Woodford In Connection To Wicksell: Getting Married or Divormentioning

confidence: 99%

Section: Woodford In Connection To Wicksell: Getting Married or Divormentioning

confidence: 99%

Section: The Concept Of a Natural Rate Of Interestmentioning

confidence: 99%

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Monetary Policy Rule in Theory and Practice

Barbaroux¹

2013

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“…Leijonhufvud (1981) and Backhouse and Laidler (2004). For detailed checks of what is lost with the New Neoclassical Synthesis see, e.g., Tamborini et al (in press) and Trautwein and Zouache (2009).…”

Section: Contextmentioning

confidence: 98%

Three macroeconomic syntheses of vintage 1937: Hicks, Haberler, and Lundberg

Trautwein¹

2014

The European Journal of the History of Economic Thought

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Monetary policy, de-anchoring of inflation expectations, and the “new normal”

Gobbi

Mazzocchi

Tamborini

2019

Journal of Macroeconomics

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Persistently low inflation rates in the Euro Area raise the question whether inflation is still credibly anchored to the Euro-system's medium term target of below, but close to 2%. The purpose of this paper is twofold. First, we investigate why agents' expectations that over the business cycle inflation will remain in line with the target begin to falter. Our hypothesis is that agents form expectations in terms of their confidence in the "normal regime", which is updated observing the state of the economy. Second, we study how the de-anchoring of expectations interacts with monetary policy determining whether the central bank is still able to achieve its target-and hence re-anchor inflation expectations-or whether the system drifts away towards depressed states of low inflation and output. Two are our main findings. The first is that, facing unfavourable shocks, if inflation expectations "fall faster" than the policy rate, and the zero lower bound is reached without correcting the shock, the system converges to a new steady state-the "new normal"-with permanent negative gaps. The second is that a more aggressive monetary policy is ineffective both at the ZLB and above the ZLB, when the shock is large and/or when the reactivity of inflation expectations is high enough. This last finding seems to support the necessity, in those conditions, to abandon conventional monetary policy and to switch to an aggressive reflationary policy that prevents the entrenchment of deflationary expectations.

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Natural rates in the New Synthesis: Same old trouble?

Abstract: Th is paper evaluates the concepts of natural rates of interest and output in

Cited by 10 publications

References 14 publications

Monetary Policy Rule in Theory and Practice

Monetary Policy Rule in Theory and Practice

Three macroeconomic syntheses of vintage 1937: Hicks, Haberler, and Lundberg

Monetary policy, de-anchoring of inflation expectations, and the “new normal”

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