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Nominal Rigidities in an Estimated Two Country

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Author Info
Riccardo Cristadoro (Bank of Italy)
Andrea Gerali () (Bank of Italy)
Stefano Neri (Bank of Italy)
Massimiliano Pisani (Bank of Italy)

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Abstract

This paper uses bayesian techniques to estimate a small-scale two country model based on the Euro Area and the U.S. data. The model, based on the New Open Economy Macroeconomics framework, is microfounded and characterized by nominal price rigidities, a nontradable sector, home bias in consumption and incomplete financial markets at international level. Two versions of the model are estimated: in one the international law of one price for tradable goods holds, in the other there is international price discrimination. Several results emerge. First, nominal rigidities are quite symmetric across countries. Second, Euro Area and U.S. monetary policies are different; in particular, U.S policy makers seems to be relatively more aggressive against inflation. Third, international spillovers are low

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2006 with number 162.

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Date of creation: 04 Jul 2006
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Handle: RePEc:sce:scecfa:162

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Related research
Keywords: Macroeconomic simulation; Bayesian Estimation; Non-traded goods; Distribution costs;

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
E00 - Macroeconomics and Monetary Economics - - General - - - General

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  1. Cambell Leith & Simon Wren-Lewis, 2006. " The Optimal Monetary Policy Response to Exchange Rate Misalignments," CDMA Conference Paper Series 0605, Centre for Dynamic Macroeconomic Analysis. [Downloadable!]
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