Business cycle and monetary policy analysis in a structural sticky-price model of the euro area
Structural models are a powerful tool for business cycle and monetary policy analysis because they are invariant to either policy changes or external shocks. In this paper, we derive a Sidrauski-type model in which both the demand and supply side are structural in the sense that the behavioral equations obtained are rigorously calculated from optimizing decisions of the individuals. Moreover, we introduce price stickiness on the supply side decisions so as to have relevant short-run real effects of monetary policy through the real interest rate channel. The resulting medium-size model will be calibrated and estimated for the euro area, some simulations on business cycle and monetary policy analysis will be carried out. JEL Classification: E20, E32, E52
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- 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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