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On monetary policy rules for the euro area

Listed author(s):
  • Miguel Casares


    (Universidad Pública de Navarra)

In this paper a New Keynesian model is described and partially estimated for the euro area. The model is then used to analyze the stabilizing properties of alternative monetary policy rules for the euro area: instrument (Taylor-type) rules and targeting rules. Our main finding is that if instrument rules are designed optimally they behave similarly to targeting rules both in terms of performance and robustness. This result is obtained for a variety of ECB preferences on stabilizing inflation, the output gap, and the nominal interest rate. Furthermore, the rule quasi-equivalence is also obtained if the ECB objective function is based on welfare maximization.

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File Function: First version, September 2004
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Paper provided by Banco de España & Working Papers Homepage in its series Working Papers with number 0415.

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Length: 44 pages
Date of creation: Sep 2004
Handle: RePEc:bde:wpaper:0415
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