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Term Structure and the Estimated Monetary Policy Rule in the Eurozone

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Author Info
Ramón María-Dolores () (Bank of Spain, Universidad de Murcia)
Jesús Vázquez () (The University of the Basque Country)

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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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Paper provided by University of the Basque Country - Department of Foundations of Economic Analysis II in its series DFAEII Working Papers with number 200805.

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Date of creation: 08 Apr 2008
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Publication status: Forthcoming in International Review of Economics and Finance
Handle: RePEc:ehu:dfaeii:200805

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Postal: Dpto. de Fundamentos del Análisis Económico II, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain
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Related research
Keywords: NKM model; term structure; policy rule; indirect inference;

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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(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. María-Dolores, Ramon & Vazquez, Jesus & Londoño, Juan M., 2009. "Extending the New Keynesian Monetary Model with Information Revision Processes: Real-time and Revised Data," Annals of Computational Economics 4695, Murcia University, DIGITUM. Universidad de Murcia. [Downloadable!]
  2. María-Dolores, Ramon & Vázquez, Jesús & Londoño, Juan M., 2009. "On the informational role of term structure in the US monetary policy rule," Annals of Computational Economics 4699, Murcia University, DIGITUM. Universidad de Murcia. [Downloadable!]
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