IDEAS home Printed from https://ideas.repec.org/a/ijc/ijcjou/y2026q3a6.html

Modernizing Central Banks’ Large Semi-Structural Projection Models: The Role of Model-Consistent Expectations

Author

Listed:
  • Stéphane Adjemian

    (Université du Mans)

  • Nikola Bokan

    (European Central Bank)

  • Matthieu Darracq Pariès

    (European Central Bank)

  • Georg Müller

    (European Central Bank)

  • Srecko Zimic

    (European Central Bank)

Abstract

We enrich the ECB’s modeling toolkit by incorporating model-consistent expectations into the workhorse projection model, ECB-BASE. This enables analysis of announced policy shifts and anticipation effects. We nest VAR expectations, model-consistent expectations, and several combinations of the two, termed as hybrid settings. In addition, the Dynare computational environment has been advanced in several dimensions to enable these new modeling capabilities. We then examine monetary policy implications of varying expectation formation. Simulations indicate that forward-looking expectations result in smoother output responses but front-loaded price reactions to policy shocks. By applying the model to assess recent supply shocks that have led to a surge in inflation, we find that forward-looking expectations from the private sector imply increased macroeconomic volatility, necessitating an early policy response.

Suggested Citation

  • Stéphane Adjemian & Nikola Bokan & Matthieu Darracq Pariès & Georg Müller & Srecko Zimic, 2026. "Modernizing Central Banks’ Large Semi-Structural Projection Models: The Role of Model-Consistent Expectations," International Journal of Central Banking, International Journal of Central Banking, vol. 22(3), pages 253-294, July.
    • Handle: RePEc:ijc:ijcjou:y:2026:q:3:a:6
    as

    Download full text from publisher

    File URL: https://www.ijcb.org/journal/v22n3/modernizing-central-banks-large-semi-structural-projection-models-role-model
    Download Restriction: no
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ijc:ijcjou:y:2026:q:3:a:6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Bank for International Settlements (email available below). General contact details of provider: https://www.ijcb.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.