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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. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1997. "Monetary Policy Rules in Practice: Some International Evidence," CEPR Discussion Papers 1750, C.E.P.R. Discussion Papers.
  2. Filippo Altissimo & Stefano Siviero & Daniele Terlizzese, 1999. "How deep are the deep parameters?," Temi di discussione (Economic working papers) 354, Bank of Italy, Economic Research and International Relations Area.
  3. Fabio Panetta & Roberto Violi, 1999. "Is there an Equity Premium Puzzle in Italy? A Look at Asset Returns, Consumption and Financial Structure Data over the Last Century," Temi di discussione (Economic working papers) 353, Bank of Italy, Economic Research and International Relations Area.
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  12. Gambacorta, L., 1997. "Heterogeneous "Credit Channels: and Optimal Monetary Policy in a Monetary Union," The Warwick Economics Research Paper Series (TWERPS) 492, University of Warwick, Department of Economics.
  13. 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.
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  15. Alberto Baffigi & Marcello Pagnini & Fabio Quintiliani, 1999. "Industrial District and Local Banks: Do the Twins Ever Meet?," Temi di discussione (Economic working papers) 347, Bank of Italy, Economic Research and International Relations Area.
  16. Nucci, F. & Pozzolo, A.F., 1998. "Investment and the Exchange Rate," Papers 344, Banca Italia - Servizio di Studi.
  17. Gaiotti, E. & Nicoletti-Altimari, S., 1996. "Monetary Policy Transmission, the Exchange Rate and Long-Term Yields under Different Hypothesis on Expectations," Papers 276, Banca Italia - Servizio di Studi.
  18. Fabrice COLLARD & Patrick FEVE & François LANGOT, 2002. "Structural Inference and the Lucas Critique," Annales d'Economie et de Statistique, ENSAE, issue 67-68, pages 183-206.
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Cited by:
  1. 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.
  2. Altissimo, Filippo & Gaiotti, Eugenio & Locarno, Alberto, 2005. "Is money informative? Evidence from a large model used for policy analysis," Economic Modelling, Elsevier, vol. 22(2), pages 285-304, March.
  3. Stefano Siviero & Daniele Terlizzese, 2007. "Macroeconomic Forecasting: Debunking a Few Old Wives' Tales," Journal of Business Cycle Measurement and Analysis, OECD Publishing,CIRET, vol. 2007(3), pages 287-316.

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