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On monetary policy rules for the euro area

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Author Info

  • Miguel Casares

    ()
    (Universidad Pública de Navarra)

Abstract

In this paper a New Keynesian model is described and partially estimated for the euro area. The model is then used to analyze the stabilizing properties of alternative monetary policy rules for the euro area: instrument (Taylor-type) rules and targeting rules. Our main finding is that if instrument rules are designed optimally they behave similarly to targeting rules both in terms of performance and robustness. This result is obtained for a variety of ECB preferences on stabilizing inflation, the output gap, and the nominal interest rate. Furthermore, the rule quasi-equivalence is also obtained if the ECB objective function is based on welfare maximization.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/04/Fic/dt0415e.pdf
File Function: First version, September 2004
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Bibliographic Info

Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0415.

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Length: 44 pages
Date of creation: Sep 2004
Date of revision:
Handle: RePEc:bde:wpaper:0415

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Web page: http://www.bde.es/
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Related research

Keywords: Instrument rules; targeting rules; euro area;

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Cited by:
  1. Thanassis Kazanas & Elias Tzavalis, 2011. "Unveiling the monetary policy rule in euro area," Working Papers 130, Bank of Greece.
  2. Feldkord, Eva-Ulrike, 2005. "On the relevance of monetary aggregates in monetary policy models," HWWA Discussion Papers 317, Hamburg Institute of International Economics (HWWA).
  3. 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.
  4. Adela Luque, 2005. "Skill mix and technology in Spain: evidence from firm level data," Banco de Espa�a Working Papers 0513, Banco de Espa�a.

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