Optimal Monetary Policy in an Estimated DSGE Model of the Euro Area with Cross-country Heterogeneity

Détails

ID Serval
serval:BIB_70ABB62C6C84
Type
Article: article d'un périodique ou d'un magazine.
Collection
Publications
Institution
Titre
Optimal Monetary Policy in an Estimated DSGE Model of the Euro Area with Cross-country Heterogeneity
Périodique
International journal of central banking / Bank of Canada
Auteur(s)
Jondeau E., Sahuc J.-G.
ISSN
1815-4654
Statut éditorial
Publié
Date de publication
2008
Peer-reviewed
Oui
Volume
4
Numéro
2
Pages
23-72
Langue
anglais
Résumé
This paper investigates the implications of cross-country heterogeneity within the euro area for the design of optimal monetary policy. We build an optimization-based multicountry model (MCM) describing the euro area in which differences between structural parameters across countries are allowed. Using Bayesian techniques, we estimate the MCM and its area-wide counterpart (AWM). We then question which model is the most appropriate for monetary policy purposes. Several results emerge. First, using an AWM induces relatively large and significant welfare losses. Second, this is not the use of a rule based on aggregated variables that is costly in terms of welfare, but rather the use of a suboptimal forecasting model. Third, allowing for habit on consumption has important implications for the dynamics of models, but taking into account differences in price indexation has more drastic effects on welfare losses.
Web of science
Création de la notice
09/05/2008 12:49
Dernière modification de la notice
20/08/2019 14:29
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