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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.

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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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Publisher 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

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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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Find related papers by JEL classification:
D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior

References listed on IDEAS
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. Richard Clarida & Jordi Gali & Mark Gertler, 1997. "Monetary Policy Rules in Practice: Some International Evidence," NBER Working Papers 6254, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Altissimo, F. & Siviero, S. & Terlizzese, D., 1999. "How Deep Are the Deep Parameters?," Papers 354, Banca Italia - Servizio di Studi.
    Other versions:
  3. Altissimo, F. & Violante, G.L., 1998. "Nonlinear VAR: Some Theory and an Application to the US GNP and Unemployment," Papers 338, Banca Italia - Servizio di Studi.
  4. Fornari, F. & Violi, R., 1998. "The Probability Density Function of Interest Rates Implied in the Price of Options," Papers 339, Banca Italia - Servizio di Studi.
  5. Gambacorta, L., 1998. "Heterogeneous "Credit Channels" and Optimal Monetary Policy in a Monetary Union," Papers 340, Banca Italia - Servizio di Studi.
    Other versions:
  6. Lippi, F., 1999. "Median Voter Preferences, Central Bank Independence and Conservatis," Papers 351, Banca Italia - Servizio di Studi.
    Other versions:
  7. Corsetti, G. & Pesenti, P. & Roubini, N., 1998. "What Caused the Asian Currency and Financial Crisis?," Papers 343, Banca Italia - Servizio di Studi.
    Other versions:
  8. 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.
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  9. Smith, Ron, 1998. "Emergent policy-making with macroeconometric models," Economic Modelling, Elsevier, vol. 15(3), pages 429-442, July. [Downloadable!] (restricted)
  10. 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 Department. [Downloadable!]
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  11. Gressani, Daniela & Guiso, Luigi & Visco, Ignazio, 1988. "Disinflation in Italy: An analysis with the econometric model of the bank of Italy," Journal of Policy Modeling, Elsevier, vol. 10(2), pages 163-203. [Downloadable!] (restricted)
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  13. Svensson, Lars E. O., 1997. "Inflation forecast targeting: Implementing and monitoring inflation targets," European Economic Review, Elsevier, vol. 41(6), pages 1111-1146, June. [Downloadable!] (restricted)
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  14. Farmer, Roger E A, 1991. "The Lucas Critique, Policy Invariance and Multiple Equilibria," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 321-32, April. [Downloadable!] (restricted)
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  15. Gambacorta, L., 1999. "What Is the Optimal Institutional Arrangement for a Monetary Union?," Papers 356, Banca Italia - Servizio di Studi.
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  16. Nucci, F. & Pozzolo, A.F., 1998. "Investment and the Exchange Rate," Papers 344, Banca Italia - Servizio di Studi.
  17. Svensson, Lars E.O., 1998. "Inflation Targeting as a Monetary Policy Rule," Seminar Papers 646, Stockholm University, Institute for International Economic Studies. [Downloadable!]
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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. Schivardi, Fabiano, 2003. "Reallocation and learning over the business cycle," European Economic Review, Elsevier, vol. 47(1), pages 95-111, February. [Downloadable!] (restricted)
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  20. Christina D. Romer & David H. Romer, 1996. "Federal Reserve Private Information and the Behavior of Interest Rates," NBER Working Papers 5692, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  21. Zaghini, A., 1999. "The Economic Policy of Fiscal Consolidations: The European Experience," Papers 355, Banca Italia - Servizio di Studi.
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  22. 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.
  23. Alessandro Prati & Francesco Drudi, 1999. "Signaling Fiscal Regime Sustainability," IMF Working Papers 99/86, International Monetary Fund.
    Other versions:
  24. Cukierman, Alex & Lippi, Francesco, 1998. "Central Bank Independence, Centralization of Wage Bargaining, Inflation and Unemployment - Theory and Evidence," CEPR Discussion Papers 1847, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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Full references

Cited by:
(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. 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 Department. [Downloadable!]
    Other versions:
  2. Dario Focarelli & Alberto Franco Pozzolo, 2000. "The Determinants of Cross-Border Bank Shareholdings; an Analysis with Bank-Level Data from OECD Countries," Temi di discussione (Economic working papers) 381, Bank of Italy, Economic Research Department. [Downloadable!]
    Other versions:
  3. 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 Department. [Downloadable!]
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