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Optimal monetary policy in an estimated DSGE for the euro area Author info | Abstract | Publisher info | Download info | Related research | Statistics Matthieu Darracq Pariès () (European Central Bank, Kaiserstraße 29, 60311 Frankfurt, Germany. )
Stéphane Adjemian () (CEPREMAP & GAINS, Université du Maine, Avenue Olivier Messiaen, 72085 Le Mans Cedex 9, France. )
Stéphane Moyen () (Centre d‘Études des Politiques Économiques (EPEE), Université d‘Évry Val d‘Essonne, 4, bld Francois Mitterand, 91025 Évry Cedex, France. )
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The objective of this paper is to examine the main features of optimal monetary policy within a micro-founded macroeconometric framework. First, using Bayesian techniques, we estimate a medium scale closed economy DSGE for the euro area. Then, we study the properties of the Ramsey allocation through impulse response, variance decomposition and counterfactual analysis. In particular, we show that, controlling for the zero lower bound constraint, does not seem to limit the stabilization properties of optimal monetary policy. We also present simple monetary policy rules which can "approximate" and implement the Ramsey allocation reasonably well. Such optimal simple operational rules seem to react specifically to nominal wage inflation. Overall, the Ramsey policy together with its simple rule approximations seem to deliver consistent policy messages and may constitute some useful normative benchmarks within medium to large scale estimated DSGE framework. However, this normative analysis based on estimated models reinforces the need to improve the economic micro-foundation and the econometric identification of the structural disturbances. JEL Classification: E4, E5.
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Paper provided by European Central Bank in its series Working Paper Series with number
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Length: 45 pages
Date of creation: Aug 2007Date of revision:
Handle: RePEc:ecb:ecbwps:20070803Contact details of provider: Postal: Postfach 16 03 19, Frankfurt am Main, Germany Phone: +49 69 1344 0 Fax: +49 69 1344 6000 Web page: http://www.ecb.europa.eu/home/html/index.en.html More information through EDIRC
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Keywords: DSGE models ; Monetary policy ; Bayesian estimation ; Welfare calculations. ; Other versions of this item:
This paper has been announced in the following NEP Reports :
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