Monetary policy with trend growth uncertainty

Matthew Shapiro,  University of Michigan

Abstract

The United States and other countries experienced an increase in productivity growth in the second half of the 1990s.  Did this increase correspond to a sustainable increase in technology?  This paper reviews a framework for answering this question, reviews evidence from the United States and evaluates data from New Zealand.  There is evidence that the U.S. enjoyed an increase in the pace of technological progress.  New Zealand had no such increase.  It is uncertain whether this increase is sustainable in the U.S. or can be replicated in New Zealand in the future.  Uncertainty about the pace of technological change poses challenges for policymakers.  The paper therefore asks how alternative monetary policy rules operate in light of this uncertainty about the path of future potential output.

Return to 2003 Seminars page