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Actual and perceived monetary policy rules in a dynamic general equilibrium model of the euro area

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  • Kortelainen, Mika

    ()
    (Bank of Finland)

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    Abstract

    We present a dynamic general equilibrium model with some nominal rigidities and calibrate it to euro area data. The most important features of the model include consumption/saving decisions according to Blanchard’s stochastic lifetimes approach; valuation of private financial wealth according to the present value of capital income; overlapping Calvo wage contracts in the labour market; and a neoclassical supply side with Cobb-Douglas technology. The model is developed for use in analysing differences between perceived and actual monetary policy rules, which is then done as a means of evaluating the macroeconomic benefits of credibility in monetary policy. General properties of the model are analysed with a variety of simulation experiments.

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    File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0103.pdf
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    Bibliographic Info

    Paper provided by Bank of Finland in its series Research Discussion Papers with number 3/2001.

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    Length: 78 pages
    Date of creation: 12 Mar 2001
    Date of revision:
    Handle: RePEc:hhs:bofrdp:2001_003

    Contact details of provider:
    Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
    Web page: http://www.suomenpankki.fi/en/
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    Related research

    Keywords: EDGE; rational expectation; DGE models; nominal rigidites;

    References

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    1. Sefton, J A & In't Veld, J W, 1999. "Consumption and Wealth: An International Comparison," Manchester School, University of Manchester, vol. 67(4), pages 525-44, September.
    2. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
    3. repec:fth:bfsefi:24/98 is not listed on IDEAS
    4. Mattila, Veli-Matti, 1998. "Simulating the Effects of Imperfect Credibility: How Does the Peso Problem Affect the Real Economy?," Research Discussion Papers 24/1998, Bank of Finland.
    5. Coenen, Gunter & Wieland, Volker, 2005. "A small estimated euro area model with rational expectations and nominal rigidities," European Economic Review, Elsevier, vol. 49(5), pages 1081-1104, July.
    6. repec:fth:bfsefi:13/98 is not listed on IDEAS
    7. R. Glenn Hubbard & Anil K Kashyap & Toni M. Whited, 1993. "Internal Finance and Firm Investment," NBER Working Papers 4392, National Bureau of Economic Research, Inc.
    8. Vilmunen, Jouko, 1998. "Macroeconomic Effects of Looming Policy Shifts: Non-falsified Expectations and Peso Problems," Research Discussion Papers 13/1998, Bank of Finland.
    9. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    10. Olivier J. Blanchard, 1984. "Debt, Deficits and Finite Horizons," NBER Working Papers 1389, National Bureau of Economic Research, Inc.
    11. Fagan, Gabriel & Henry, Jerome & Mestre, Ricardo, 2005. "An area-wide model for the euro area," Economic Modelling, Elsevier, vol. 22(1), pages 39-59, January.
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