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Assessing predetermined expectations in the standard sticky-price model: a Bayesian approach

Listed author(s):
  • Welz, Peter

This paper analyses the empirical performance of a New Keynesian stickyprice model with delayed effects of monetary impulses on inflation and output for the German pre-EMU economy. The model is augmented with rule-ofthumb behaviour in consumption and price setting. Using recently developed Bayesian estimation techniques, endogenous persistence is found to play a dominant role in consumption whereas forward-looking behaviour is greater for inflation. The model’s dynamics following a monetary shock and a preference shock are comparable to those of an identified VAR model. JEL Classification: E43, E52, C51

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Paper provided by European Central Bank in its series Working Paper Series with number 0621.

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Date of creation: May 2006
Handle: RePEc:ecb:ecbwps:20060621
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