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Are Model-Based Inflation Forecasts Used in Monetary Policymaking? A Case Study

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Author Info

  • Siviero, S.
  • Terlizzese, D.
  • Visco, I.

Abstract

The process through which economic policy is conceived and decided cannot be simply described as the optimisation of a well-defined loss function s ubject to the constraints provided by a model of the economy. Even egnoring the forbidding difficulties of eliciting a stable and explicit loss function from real-life policymakers, the availability of a model reliably describing all the responses of a complex economy to policy interventions is hardly to be expected. Policy will therefore be made against the background of an incomplete model, lacking some policy transmission channels, subject to data revision and possibly to instability in the estimates equations, Requiring continuous reassessment in the light of the available data. Drawing on the experience gained with a macroeconometric model at the Bank of Italy, in this paper we describe the uses to which such a model can be put in the policymaking process.

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Bibliographic Info

Paper provided by Banca Italia - Servizio di Studi in its series Papers with number 357.

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Length: 39 pages
Date of creation: 1999
Date of revision:
Handle: RePEc:fth:banita:357

Contact details of provider:
Postal: Banca d'Italia-Servizio Studi-Divisione Biblioteca e Pubblicazioni - Via N azionale, 91 -00184 Rome, Italy.
Web page: http://www.bancaditalia.it/
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Keywords: ECONOMIC POLICY ; ECONOMIC MODELS;

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References

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  1. Cukierman, A. & Lippi, F., 1998. "Central Bank Independence, Centralization of Wage Bargaining, Inflation and Unemployment: Theory and Evidence," Papers 332, Banca Italia - Servizio di Studi.
  2. Filippo ALTISSIMO & Stefano SIVIERO & Daniele TERLIZZESE, 2002. "How Deep are the Deep Parameters?," Annales d'Economie et de Statistique, ENSAE, issue 67-68, pages 207-226.
  3. Andrea Zaghini, 1999. "The economyc policy of fiscal consolidations: The european experience," Temi di discussione (Economic working papers) 355, Bank of Italy, Economic Research and International Relations Area.
  4. Drudi, Francesco & Prati, Alessandro, 2000. "Signaling fiscal regime sustainability," European Economic Review, Elsevier, vol. 44(10), pages 1897-1930, December.
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  7. Svensson, Lars E. O., 1999. "Inflation targeting as a monetary policy rule," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 607-654, June.
  8. Lippi, Francesco, 2000. " Median Voter Preferences, Central Bank Independence and Conservatism," Public Choice, Springer, vol. 105(3-4), pages 323-38, December.
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  12. Panetta, F. & Violi, R., 1999. "Is there an Equity Premium Puzzle in Italy? A Look at Asset Returns, Consumption and Financial Structure Data Over the Last Century," Papers 353, Banca Italia - Servizio di Studi.
  13. Fabio Fornari & Roberto Violi, 1998. "The Probability Density Function of Interest Rates Implied in the Price of Options," Temi di discussione (Economic working papers) 339, Bank of Italy, Economic Research and International Relations Area.
  14. Nucci, F. & Pozzolo, A.F., 1998. "Investment and the Exchange Rate," Papers 344, Banca Italia - Servizio di Studi.
  15. Gambacorta, L., 1998. "Heterogeneous "Credit Channels" and Optimal Monetary Policy in a Monetary Union," Papers 340, Banca Italia - Servizio di Studi.
  16. Roger E.A. Farmer, 1989. "The Lucas Critique Policy Invariance and Multiple Equilibria," UCLA Economics Working Papers 551, UCLA Department of Economics.
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  18. Gaiotti, E. & Gavosto, A. & Grande, G., 1997. "Inflation and Monetary Policy in Italy: Some Recent Evidence," Papers 310, Banca Italia - Servizio di Studi.
  19. Gambacorta, L., 1999. "What Is the Optimal Institutional Arrangement for a Monetary Union?," Papers 356, Banca Italia - Servizio di Studi.
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Citations

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Cited by:
  1. Stefano Siviero & Daniele Terlizzese, 2001. "Macroeconomic forecasting: Debunking a few old wives' tales," Temi di discussione (Economic working papers) 395, Bank of Italy, Economic Research and International Relations Area.
  2. den Butter, Frank A. G. & Morgan, Mary S., 1998. "What makes the models-policy interaction successful?," Economic Modelling, Elsevier, vol. 15(3), pages 443-475, July.
  3. Filippo Altissimo & Eugenio Gaiotti & Alberto Locarno, 2002. "Is money informative? Evidence form a large model used for policy analysis," Temi di discussione (Economic working papers) 445, Bank of Italy, Economic Research and International Relations Area.

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