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The Performance and Robustness of Interest-Rate Rules in Models of the Euro Area

  • Adalid, Ramon
  • Coenen, Gunter
  • McAdam, Peter
  • Siviero, Stefano

In this paper, we examine the performance and robustness of optimized interest-rate rules in four models of the euro area that differ considerably in terms of size, degree of aggregation, relevance of forward-looking behavioral elements, and adherence to microfoundations. 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 optimized 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.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 821.

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Date of creation: 10 Feb 2005
Date of revision:
Publication status: Published in International Journal of Central Banking Number 1.Volume(2005): pp. 95-132
Handle: RePEc:pra:mprapa:821
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