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Are Model-Based Inflation Forecasts Used in Monetary Policymaking? A Case Study

  • Siviero, S.
  • Terlizzese, D.
  • Visco, I.

The process through which economic policy is conceived and decided cannot be simply described as the optimisation of a well-defined loss function s ubject to the constraints provided by a model of the economy. Even egnoring the forbidding difficulties of eliciting a stable and explicit loss function from real-life policymakers, the availability of a model reliably describing all the responses of a complex economy to policy interventions is hardly to be expected. Policy will therefore be made against the background of an incomplete model, lacking some policy transmission channels, subject to data revision and possibly to instability in the estimates equations, Requiring continuous reassessment in the light of the available data. Drawing on the experience gained with a macroeconometric model at the Bank of Italy, in this paper we describe the uses to which such a model can be put in the policymaking process.

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Paper provided by Banca Italia - Servizio di Studi in its series Papers with number 357.

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Length: 39 pages
Date of creation: 1999
Date of revision:
Handle: RePEc:fth:banita:357
Contact details of provider: Postal: Banca d'Italia-Servizio Studi-Divisione Biblioteca e Pubblicazioni - Via N azionale, 91 -00184 Rome, Italy.
Web page: http://www.bancaditalia.it/

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