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Monetary policy in the New-Keynesian model: An application to the Euro Area

  • Moons, Cindy
  • Garretsen, Harry
  • van Aarle, Bas
  • Fornero, Jorge

This paper analyses monetary policy in a stylized new-Keynesian model. A number of issues are focused upon: (i) optimal monetary policy under commitment or discretion vs. ad-hoc monetary policy based on simple rules, (ii) the effects of fiscal policies and foreign variables on monetary policy, (iii) the effects of fiscal deficit and interest rate smoothing objectives and the amount of forward-looking in the model. The model is estimated for the Euro-Area. Using simulations of the estimated model, it is analyzed how these aspects might affect monetary policy of the ECB and macro-economic fluctuations in the Euro-Area.

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Article provided by Elsevier in its journal Journal of Policy Modeling.

Volume (Year): 29 (2007)
Issue (Month): 6 ()
Pages: 879-902

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Handle: RePEc:eee:jpolmo:v:29:y:2007:i:6:p:879-902
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