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Launching the NEUQ: The New European Union Quarterly Model, A Small Model of the Euro Area and U.K. Economies

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Author Info
Anna Piretti
Charles St-Arnaud
Abstract

The authors develop a projection model of the euro area and the United Kingdom. The model consists of two country blocks, endogenous to each other via the foreign demand channel. Each country block features an aggregate IS curve, a forward-looking Phillips curve, and an estimated forward-looking monetary policy reaction function. Potential output is estimated by means of a Hodrick-Prescott filter, conditioned by an equilibrium path generated by a structural vector autoregression (Rennison 2003 and Gosselin and Lalonde 2002). The Phillips curve is specified in terms of the output gap, and inflation dynamics are described by the polynomial adjustment cost (PAC) approach, as in Kozicki and Tinsley (2002). The model delivers relatively accurate projections at a variety of forecast horizons and provides a useful tool for policy analysis. The authors' simulation results suggest that output and inflation exhibit a greater degree of persistence to shocks in the euro area than in the United Kingdom.

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Paper provided by Bank of Canada in its series Working Papers with number 06-22.

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Length: 53 pages
Date of creation: 2006
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Handle: RePEc:bca:bocawp:06-22

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Related research
Keywords: Economic models; Business fluctuations and cycles;

Find related papers by JEL classification:
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications
E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation
E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  2. Kirstin Hubrich & Peter J. G. Vlaar, 2000. "Germany and the Euro Area: Differences in the Transmission Process of Monetary Policy," Econometric Society World Congress 2000 Contributed Papers 1802, Econometric Society, revised 08 Nov 2000. [Downloadable!]
    Other versions:
  3. Bennett T. McCallum & Edward Nelson, 1998. "Performance of Operational Policy Rules in an Estimated Semi-Classical Structural Model," NBER Working Papers 6599, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Jeffrey C. Fuhrer, 2000. "Habit Formation in Consumption and Its Implications for Monetary-Policy Models," American Economic Review, American Economic Association, vol. 90(3), pages 367-390, June. [Downloadable!] (restricted)
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  6. Robert J. Hodrick & Edward Prescott, 1981. "Post-War U.S. Business Cycles: An Empirical Investigation," Discussion Papers 451, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  7. Nicoletta Batini & Richard Harrison & Stephen P. Millard, 2001. "Monetary policy rules for an open economy," Proceedings, Federal Reserve Bank of San Francisco, issue Mar. [Downloadable!]
    Other versions:
  8. Ng, S. & Perron, P., 1994. "Unit Root Tests ARMA Models with Data Dependent Methods for the Selection of the Truncation Lag," Cahiers de recherche 9423, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
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  14. Jack McKeown & Jens McKeown, 2004. "The informational content of empirical measures of real interest rate and output gaps for the United Kingdom," Money Macro and Finance (MMF) Research Group Conference 2003 62, Money Macro and Finance Research Group. [Downloadable!]
  15. Carlo Altavilla & Luigi Landolfo, 2005. "Do central banks act asymmetrically? Empirical evidence from the ECB and the Bank of England," Applied Economics, Taylor and Francis Journals, vol. 37(5), pages 507-519, March. [Downloadable!] (restricted)
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  17. Gabriel Fagan & Jérôme Henry & Ricardo Mestre, 2001. "An area-wide model (AWM) for the euro area," Working Paper Series 42, European Central Bank. [Downloadable!]
  18. Andrew Rennison, 2003. "Comparing Alternative Output-Gap Estimators: A Monte Carlo Approach," Working Papers 03-8, Bank of Canada. [Downloadable!]
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    Other versions:
  21. Sharon Kozicki & P.A. Tinsley, 2002. "Alternative sources of the lag dynamics of inflation," Research Working Paper RWP 02-12, Federal Reserve Bank of Kansas City. [Downloadable!]
    Other versions:
  22. Jan Marc Berk & Peter A.G. Vanbergeijk, 2000. "Is the yield curve a useful information variable for the Eurosystem?," Working Paper Series 11, European Central Bank. [Downloadable!]
  23. Estrella, Arturo & Mishkin, Frederic S., 1997. "The predictive power of the term structure of interest rates in Europe and the United States: Implications for the European Central Bank," European Economic Review, Elsevier, vol. 41(7), pages 1375-1401, July. [Downloadable!] (restricted)
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  25. Issing, O., 2004. "The role of macroeconomic projections within the monetary policy strategy of the ECB," Economic Modelling, Elsevier, vol. 21(5), pages 723-734, September. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Rene Lalonde & Dirk Muir, 2007. "The Bank of Canada's Version of the Global Economy Model (BoC-GEM)," Technical Reports 98, Bank of Canada. [Downloadable!]
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