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Business Cycle and Monetary Policy Analysis in a Structural Sticky- Price Model of The Euro Area

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Abstract

Structural models are a powerful tool for business cycle and monetary policy analysis because they are assumed to be invariant to either policy changes or external shoxks. In this paper, we derive a neoclassical monetary model in which both the demand and supply side are setructural in the sense that the behavioral equations obtaind are regorously calculated from optimizing decisions of the individuals. Moerover, we introduce price stickiness on the supply side decisions so as to have relevant short-run real effects of monetary policy through the rreal interest rate channel. The resulting medium-size model will be calibrated and estimated for the euro area economies. As two examples of the applications of the model for the euro area, some simulations on business cycle and monetary policy analysis will be carried out.

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File URL: ftp://ftp.econ.unavarra.es/pub/DocumentosTrab/DT0109.PDF
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Bibliographic Info

Paper provided by Departamento de Economía - Universidad Pública de Navarra in its series Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra with number 0109.

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Length: 38 pages
Date of creation: 2001
Date of revision:
Publication status: Published in
Handle: RePEc:nav:ecupna:0109

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Keywords: optimizing dynamic models; sticky prices; business cycle; Taylor rules;

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  1. William Kerr & Robert G. King, 1996. "Limits on interest rate rules in the IS model," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 47-75.
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Cited by:
  1. Smets, Frank & Wouters, Raf, 2002. "Openness, imperfect exchange rate pass-through and monetary policy," Working Paper Series 0128, European Central Bank.
  2. Francesco Lippi & Stefano Neri, 2004. "Information variables for monetary policy in a small structural model," DNB Staff Reports (discontinued) 120, Netherlands Central Bank.
  3. Juan Paez-Farrell, 2003. "The New Keynesian Phillips Curve: Some Counterfactual Evidence," Macroeconomics 0312003, EconWPA.
  4. Smets, Frank & Wouters, Raf, 2002. "An estimated stochastic dynamic general equilibrium model of the euro area," Working Paper Series 0171, European Central Bank.
  5. Francesco Lippi & Stefano Neri, 2004. "Information variables for monetary policy in a small structural model of the euro area," Temi di discussione (Economic working papers) 511, Bank of Italy, Economic Research and International Relations Area.
  6. Frank Smets & Raf Wouters, 2002. "Monetary policy in an estimated stochastic dynamic general equilibrium model of the Euro area," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  7. Sandra Gomes, 2004. "Monetary Policy in a Currency Union with National Price Asymmetries," Working Papers w200416, Banco de Portugal, Economics and Research Department.
  8. Dorofeenko, Viktor & Lee, Gabriel S. & Salyer, Kevin D., 2005. "Agency Costs and Investment Behavior," Economics Series 182, Institute for Advanced Studies.
  9. Juan Paez-Farrell, 2003. "Monetary Policy and Business Cycle Analysis in an Optimising Model with Expectations Lags," Macroeconomics 0312002, EconWPA.

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