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The performance and robustness of interest-rate rules in models of the euro area

  • Adalid, Ramón
  • Coenen, Günter
  • McAdam, Peter
  • Siviero, Stefano

In this paper, we examine the performance and robustness of optimised interest-rate rules in four models of the euro area which differ considerably in terms of size, degree of aggregation, relevance of forward-looking behavioural elements and adherence to micro-foundations. Our findings are broadly consistent with results documented for models of the U.S. economy: backward-looking models require relatively more aggressive policies with at most moderate inertia; rules that are optimised for such models tend to perform reasonably well in forward-looking models, while the reverse is not necessarily true; and, hence, the operating characteristics of robust rules (i.e., rules that perform satisfactorily in all models) are heavily weighted towards those required by backward-looking models. JEL Classification: E31, E52, E58, E61

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Paper provided by European Central Bank in its series Working Paper Series with number 0479.

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Date of creation: Apr 2005
Date of revision:
Handle: RePEc:ecb:ecbwps:20050479
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