A Small Forward-Looking Macroeconomic Model for EMU
AbstractIn this paper we estimate a small forward-looking macroeconomic model for EMU which allows us to analyze the transmission mechanism of the monetary policy implemented by the European Central Bank through an interest rate rule that stabilizes inflation and output. The estimation of this model, which comprises forwardlooking versions of the IS and the Phillips curves as well as the interest rate rule, is conducted by GMM using quarterly data from 1986 to 2000. We find that this simple model matches the dynamic properties of the output gap, inflation and the interest rate in EMU quite accurately. We also perform several exercises that show the response of output, inflation and interest rates to different kinds of shocks affecting the economy, under the assumption that the ECB implements the monetary policy described by the estimated interest rate rule. Comparisons with backward-looking models for the United States show that our forward-looking model produces less persistence of the endogenous variables in response to shocks of the same magnitude.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by BBVA Bank, Economic Research Department in its series Working Papers with number 0102.
Date of creation: Jul 2001
Date of revision:
IS curve; inflation; interest rate rule; monetary policy;
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- MOONS, Cindy & GARRETSEN, Harry & VAN AARLE, Bas & FORNERO, Jorge, 2007.
"Monetary policy in the new-Keynesian model: An application to the Euro-Area,"
2007014, University of Antwerp, Faculty of Applied Economics.
- Moons, Cindy & Garretsen, Harry & van Aarle, Bas & Fornero, Jorge, 2007. "Monetary policy in the New-Keynesian model: An application to the Euro Area," Journal of Policy Modeling, Elsevier, vol. 29(6), pages 879-902.
- Sophocles N. Brissimis & Ifigeneia Skotida, 2007.
"Optimal Monetary Policy in the Euro Area in the Presence of Heterogeneity,"
62, Bank of Greece.
- Brissimis, Sophocles N. & Skotida, Ifigeneia, 2008. "Optimal monetary policy in the euro area in the presence of heterogeneity," Journal of International Money and Finance, Elsevier, vol. 27(2), pages 209-226, March.
- Anna Piretti & Charles St-Arnaud, 2006. "Launching the NEUQ: The New European Union Quarterly Model, A Small Model of the Euro Area and U.K. Economies," Working Papers 06-22, Bank of Canada.
- Danfeng Kong & Osamu Kamoike, . "The stability condition of a forward looking Taylor rule," EAERG Discussion Paper Series 0705, School of Economics, University of Queensland, Australia.
- Séverine Menguy, 2009. "Heterogeneity in Inflation Persistence and Monetary Policy in a Monetary Union," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 52(2), pages 121-141.
- Mayer, Eric, 2003. "The mechanics of a reasonably fitted quarterly New Keynesian macro model," W.E.P. - WÃ¼rzburg Economic Papers 41, University of Würzburg, Chair for Monetary Policy and International Economics.
- Männistö , Hanna-Leena, 2005. "Forecasting with a forward-looking DGE model: combining long-run views of financial markets with macro forecasting," Research Discussion Papers 21/2005, Bank of Finland.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ANGIE CAROLINA SUAREZ SALAZAR).
If references are entirely missing, you can add them using this form.