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15 this concept derived from the ideas of knut

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Unformatted text preview: Cúrdia and Woodford (2010a), my coauthor and I show, in the context of a New Keynesian dynamic stochastic general equilibrium model with credit frictions, that such a modification of the standard Taylor rule can improve the economy’s response response to disturbances to the supply of intermediation. 15 This concept, derived from the ideas of Knut Wicksell, is discussed extensively in Woodford (2003, chap. 4). One might alternatively define the natural rate as the real rate that would be required for output equal to the natural rate of output under the assumption of a credit spread equal to some normal (steady state) level; the important feature of the proposed definition is that it abstracts from the effects of variations in the size of credit frictions. 16 In Cúrdia and Woodford (2009), we derive an intertemporal version of the “IS curve” in which the credit spread appears as a shift factor. Gaspar and Kashyap (2006) were perhaps the first to propose such a relation. 40 Journal of Economic Perspectives Alternatively, Alternatively, a forecast-targeting approach to monetary policy of the kind I recommended in this journal in Woodford (2007)—in which the central bank’s target fo...
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