In this paper, by using several statistical tools, we provide evidence of increased persistence of the U.S. total factor productivity. In a forward-looking model, agentsí optimal behavior depends on the autocorrelation structure of the exogenous shocks. Since many monetary models are driven by exogenous technology shocks, we study the implications of a change in technology persistence on monetary policy using a New Keynesian framework. First, we analytically derive the interaction between the TFP persistence, monetary policy parameters, and output gap and ináation. Second, we show that change in the TFP persistence a§ects the optimal behavior of monetary policy.
