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Monetary Policy under Rule-of-Thumb Consumers and External Habits

Author

Listed:
  • Giovanni Di Bartolomeo

    (University of Rome I and University of Teramo)

  • Lorenza Rossi

    (University of Rome II and ISTAT)

  • Massimiliano Tancioni

    (University of Rome I)

Abstract

This paper develops and estimates a simple New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model with rule-of-thumb consumers and external habits. Our theoretical model has a closed-form solution which allows the analytical derivation of its dynamical and stability properties. These properties are analyzed and discussed in the light of their implications for the efficacy and the calibration of the conduct of the monetary policy. The model is then evaluated empirically, employing numerical simulations based on Monte Carlo Bayesian estimates of the structural parameters and impulse response analyses based on weakly identified SVECMs. The estimates are repeated for each of the G7 national economies. Providing single country estimates and simulations, we derive some indications on the relative efficacy of monetary policy and of its potential asymmetric effects resulting from the heterogeneity of the estimated models.

Suggested Citation

  • Giovanni Di Bartolomeo & Lorenza Rossi & Massimiliano Tancioni, 2007. "Monetary Policy under Rule-of-Thumb Consumers and External Habits," Money Macro and Finance (MMF) Research Group Conference 2006 1, Money Macro and Finance Research Group.
    • Handle: RePEc:mmf:mmfc06:1
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    References listed on IDEAS

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    Cited by:

    1. Buffie, Edward F., 2013. "The Taylor principle fights back, Part I," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2771-2795.
    2. Jorge A. Fornero, 2010. "Ricardian Equivalence Proposition in a NK DSGE Model for two Large Economies: The EU and the US," Working Papers Central Bank of Chile 563, Central Bank of Chile.

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    More about this item

    Keywords

    Rule-of-thumb; habits; monetary policy transmission; price puzzle; DSGE New Keynesian model; monetary policy; SVECM and Monte Carlo Bayesian estimators.;
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