Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may Statement of purpose:The purpose of these working papers is to promote the circulation of research results (Research Series) and analytical studies (Documents Series) made within the National Bank of Belgium or presented by external economists in seminars, conferences and conventions organised by the Bank. The aim is therefore to provide a platform for discussion. The opinions expressed are strictly those of the authors and do not necessarily reflect the views of the National Bank of Belgium. Non-technical summaryOver the past decade, a new generation of small-scale monetary micro-founded business cycle models with sticky prices and wages (the New Keynesian or New Neoclassical Synthesis (NNS) models) has become popular in monetary policy analysis. This paper estimates an extended version of these models on US data covering the period 1966:1-2004:4 and using a Bayesian estimation methodology. The estimated model contains many shocks and frictions. It features sticky nominal price and wage setting that allow for backward inflation indexation, habit formation in consumption and investment adjustment costs that create hump-shaped responses of aggregate demand, and variable capital utilisation and fixed costs in production. The stochastic dynamics is driven by seven orthogonal structural shocks: total factor productivity shocks, risk premium shocks, investment-specific technology shocks, wage mark-up shocks, price mark-up shocks, exogenous spending shocks and monetary policy shocks.The objectives of the paper are threefold. First, as the NNS models have become the standard workhorse for monetary policy analysis, it is important to verify whether they can explain the main features of the US macro data: real GDP, hours worked, consumption, investment, real wages, prices and the short-term nominal interest rate. We show that the NNS model has a fit comparable to that of Bayesian VAR models. These results are confirmed by a simple out-of-sample forecasting exercise. The restrictions implied by the NNS model lead to an improvement of the forecasting performance compared to standard VARs, in particular, at medium-term horizons. Bayesian NNS models therefore combine a sound, microfounded structure suitable for policy analysis with a good probabilistic description of the observed data and good forecasting performance.Second, the introduction of a large number of frictions raises the question whether each of those frictions a...

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. production. The stochastic dynamics is driven by seven orthogonal structural shocks: total factor productivity shocks, risk premium shocks, investment-specific technology shocks, wage mark-up shocks, price mark-up shocks, exogenous spending shocks and monetary policy shocks. Terms of use: Documents in EconStor mayThe objectives of the paper are threefold. First, as the NNS models have become the standard workhorse for monetary policy analysis, it is important to verify whether they can explain the main features of the US macro data: real GDP, hours worked, consumption, investment, real wages, prices and the short-term nominal interest rate. We show that the NNS model has a fit comparable to that of Bayesian VAR models. These results are confirmed by a simple out-of-sample forecasting exercise. The restrictions implied by the NNS model lead to an improvement of the forecasting performance compared to standard VARs, in particular, at medium-term horizons. Bayesian NNS models therefore combine a sound, microfounded structure suitable for policy analysis with a good probabilistic description of the observed data and good forecasting performance.Second, the introduction of a large number of frictions raises the question whether each of those frictions are really necessary to describe the seven data series. The Bayesian estimation methodology provides a natural framework for testing which frictions are empirically important by comparing the marginal ECB Working Paper Series No 722February 2007 important are the investment adjustment costs. In the presence of wage stickiness, the introduction of variable capacity utilisation is less important.Finally, we use the estimated NNS model to address a number of key business cycle issues. First, what are the main driving forces of output developments in the US? We find that "demand" shocks such as the risk premium, exogenous spending and investment-specific technology shocks explain a significant fraction of the short-run forecast variance in output. However, wage mark-up (or labour supply) and to a lesser extent productivity shocks explain most of its variation in the medium to long run. Second, do positive productivity shocks increase or reduce employment. We find that they have a significant shortrun negative impact on hours worked. This is the case even in the economy with flexible prices and wages because of the slow adjustment of the two demand components following a positive productivity shock.Third, inflation de...

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. AbstractThis paper develops and estimates a dynamic stochastic general equilibrium (DSGE) model with sticky prices and wages for the euro area. The model incorporates various other features such as habit formation, costs of adjustment in capital accumulation and variable capacity utilisation. It is estimated with Bayesian techniques using seven key macro-economic variables: GDP, consumption, investment, prices, real wages, employment and the nominal interest rate. The introduction of ten orthogonal structural shocks (including productivity, labour supply, investment, preference, cost-push and monetary policy shocks) allows for an empirical investigation of the effects of such shocks and of their contribution to business cycle fluctuations in the euro area. Using the estimated model, the paper also analyses the output (real interest rate) gap, defined as the difference between the actual and model-based potential output (real interest rate).

This paper develops and estimates a dynamic stochastic general equilibrium (DSGE) model with sticky prices and wages for the euro area. The model incorporates various other features such as habit formation, costs of adjustment in capital accumulation and variable capacity utilization. It is estimated with Bayesian techniques using seven key macroeconomic variables: GDP, consumption, investment, prices, real wages, employment, and the nominal interest rate. The introduction of ten orthogonal structural shocks (including productivity, labor supply, investment, preference, cost-push, and monetary policy shocks) allows for an empirical investigation of the effects of such shocks and of their contribution to business cycle fluctuations in the euro area. Using the estimated model, we also analyze the output (real interest rate) gap, defined as the difference between the actual and model-based potential output (real interest rate).

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