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Term structure and the estimated monetary policy rule in the eurozone

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  • Ramón María-Dolores

    ()
    (Universidad de Murcia)

  • Jesús Vázquez

    ()
    (Euskal Herriko Unibertsitatea)

Abstract

In this paper we estimate a standard version of the New Keynesian Monetary (NKM) model augmented with term structure in order to analyze two issues. First, we analyze the effect of introducing an explicit term structure channel in the NKM model on the estimated parameter values of the model, with special emphasis on the interest rate smoothing parameter using data for the Eurozone. Second, we study the ability of the model to reproduce some stylized facts such as highly persistent dynamics, the weak comovement between economic activity and inflation, and the positive, strong comovement between interest rates observed in actual Eurozone data. The estimation procedure implemented is a classical structural method based on the indirect inference principle.

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Bibliographic Info

Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0827.

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Length: 42 pages
Date of creation: Dec 2008
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Handle: RePEc:bde:wpaper:0827

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Keywords: NKM model; term structure; policy rule; indirect inference;

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Cited by:
  1. Nicolas Pinkwart, 2013. "Quantifying The European Central Bank'S Interest Rate Smoothing Behavior," Manchester School, University of Manchester, vol. 81(4), pages 470-492, 07.
  2. Vázquez Pérez, Jesús & María-Dolores, Ramón & Londoño, Juan Miguel, 2010. "On the Informational Role of Term Structure in the U.S. Monetary Policy Rule," DFAEII Working Papers 2010-01, University of the Basque Country - Department of Foundations of Economic Analysis II.

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