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Evaluating Monetary Policy Rules in Estimated Forward-Looking Models: A Comparison of US and German Monetary Policies

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  • Jondeau, E.
  • Le Bihan, H.

Abstract

In this paper, we estimate two small, forward-looking, macroeconomic models for the US and Germany and we compare the implied optimal monetary policy rules. Both models have a standard structure: an I-S curve, a Phillips curve, a short term interest-rate rule and a long term interest rate determined by the Expectations Hypothesis. They are intended to fit the data while allowing for some forward-looking behavior. They are estimated from 1968 to 1998, using the full-information maximum-likelihood procedure, so that forward-looking expectations are fully model-consistent. In order to evaluate monetary policy, we compute optimal policy frontiers and we perform some simulations of the model. German optimal monetary policy is found to require a more persistent and slightly stronger response to inflation and output than the US optimal policy.

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Bibliographic Info

Paper provided by Banque de France in its series Working papers with number 76.

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Length: 33 pages
Date of creation: 2000
Date of revision:
Handle: RePEc:bfr:banfra:76

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Postal: Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS
Web page: http://www.banque-france.fr/
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Keywords: Forward-looking model ; monetary policy rules;

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References

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Cited by:
  1. Grégory Levieuge & Yannick Lucotte, 2012. "A simple Empirical Measure of Central Bank's Conservatism," Working Papers halshs-00827680, HAL.
  2. repec:ebl:ecbull:v:15:y:2005:i:5:p:1-10 is not listed on IDEAS
  3. Luís, Pacheco, 2004. "Asset Prices and Monetary Policy in the Euro Area: a tentative model," MPRA Paper 6579, University Library of Munich, Germany.

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