Universität Bonn

Department of Economics

MEF Seminar Wintersemester 2021/22

Guido Lorenzoni (Northwestern) 24.11.2021

We characterize optimal monetary policy in response to asymmetric shocks that shift
demand from one sector to another, a condition arguably faced by many economies
emerging from the Covid-19 crisis. We show that the asymmetry manifests itself as an
endogenous cost-push shock, breaking divine coincidence, and resulting in inflation
optimally exceeding its target despite elevated unemployment. In fact, there is no
simple, possibly re-weighted, inflation index that can be used as the optimal target.
When labor is mobile between sectors, monetary easing can have the additional benefit
of inducing faster reallocation, by producing wage increases in the expanding sector.
Wednesday, 24.11.21 - 04:00 PM - 05:30 PM
"Monetary Policy in Times of Structural Reallocation"
via Zoom
Meeting ID: 998 6826 5143 Passcode: 1124
not required
Institute for Macroeconomics and Econometrics
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