This paper examines how the mechanism driving growth in the economy is likely to affect the optimal monetary policy response to shocks. We consider the Ramsey policy in a New Keynesian model in which growth is sustained by the creation of new patented technologies through R&D and we compare the results obtained with those arising when growth is exogenous. We find that optimal monetary policy must be counter-cyclical in face of both technology and public spending shocks, but the intensity of the reaction crucially depends on the underlying growth mechanism.
 

---

Download from REPEC

Download from SSRN

---