Monetary policy in the New-Keynesian model: An application to the Euro Area

Moons, Cindy; Garretsen, Harry; Aarle, Bas van; Fornero, Jorge

doi:10.1016/j.jpolmod.2007.05.013

Cited by 19 publications

(14 citation statements)

References 42 publications

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“…17 Then, the net effect of the real interest rate and of the terms of trade on goods demand is given by a 2 =ð1 − a 1 + b 1 Þ = 0.6 and b 3 =ð1 − a 1 + b 1 Þ = 0.2, respectively. Both values match the estimates given in Moons et al (2007). The former is close to the values given in Galí (2008) and Walsh (2010) and is also in line with Smets and Wouters (2003), who find a mean intertemporal elasticity of substitution of 0.7 with a 90 percent probability band ranging from 0.52 to 1.05.…”

supporting

confidence: 90%

“…The former is close to the values given in Galí (2008) and Walsh (2010) and is also in line with Smets and Wouters (2003), who find a mean intertemporal elasticity of substitution of 0.7 with a 90 percent probability band ranging from 0.52 to 1.05. 18 The slope of the Phillips curve is set to δ = 0.2 proposed by Galí (2008) and which is also close to the estimate given in Moons et al (2007). 19 In Section 7, we investigate how our results change for different parameter values for δ, l 2 , a 2 , and b 3 .…”

mentioning

confidence: 73%

“…Therefore, we do not need to specify a 0 , b 0 , and b 2 . For the remaining parameters, we broadly follow the textbook calibration given in Galí (2008) and Walsh (2010) and the estimates from Moons et al (2007), who estimate a stylized open-economy New Keynesian model for the euro area.…”

mentioning

confidence: 99%

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Partially Anticipated Monetary Policy Shocks – Are They Stabilizing or Destabilizing?

Offick

Wohltmann

2016

Jahrbücher Für Nationalökonomie Und Statistik

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This paper uses a dynamic framework of a small open economy to study the volatility effects of partially anticipated monetary policy shocks in which the public has imperfect information about the size and/or the timing of the future expansionary policy intervention. Our two main results are as follows: (i) Partially anticipated monetary policy shocks may be stabilizing, i. e. lead to a lower volatility than a fully anticipated monetary policy shock of the same form.(ii) However, we typically obtain a trade off in volatilities such that a simultaneous stabilization of inflation and output is not possible. If the public underestimates (overestimates) the size of the shock, output (inflation) may be stabilized. Our results imply that the central bank may have an incentive to withhold information from the public about the true central bank's intention.

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confidence: 90%

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confidence: 73%

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Partially Anticipated Monetary Policy Shocks – Are They Stabilizing or Destabilizing?

Offick

Wohltmann

2016

Jahrbücher Für Nationalökonomie Und Statistik

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“…In order to investigate the role of financial variables in the business cycle, we follow Goodhart and Hofmann (2000) and extend the traditional IS curve by including financial variables in the aggregate demand function. In contrast to the widely used forward-looking IS curve, we also include the backward-looking component of aggregate demand in our model to capture the habit formation and the associated adaptive manner in aggregate expenditure (Amato and Laubach, 2004;Lippi and Neri, 2007;Moons et al, 2007). 1 These considerations lead to an extended hybrid IS curve of the following form:…”

Section: Financial Variables and The Business Cyclementioning

confidence: 99%

Financial Cycle, Business Cycle and Monetary Policy: Evidence from Four Major Economies

Yong

Zhang

2016

Int. J Fin Econ

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Economists used to think that financial factors are not important in the business cycle, but the 2008 global financial crisis has made it apparent that financial cycle plays a much larger role in macroeconomic dynamics than anticipated. Against this background, economists endeavor to introduce financial factors into macroeconomic models. In this paper, we incorporate financial cycle into a four‐equation model to study the linkages and interactions between financial cycle, business cycle and monetary policy. The results suggest that financial cycle plays a significant role in the business cycle, and that financial cycle shock has become a main driving force for macroeconomic fluctuations, especially during times of financial instability. In addition, by comparing the performance of the finance‐augmented Taylor rule with that of the conventional Taylor rule, we find that both the financial system and the real economy will be better stabilized under the finance‐augmented Taylor rule. This result adds new evidence to the argument that monetary policy has an important role in safeguarding the financial system and that financial stability should be adopted as a target for monetary policy. Copyright © 2016 John Wiley & Sons, Ltd.

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“…The feedback coefficients of inflation and output gap are set to wp = 1.5 and wŷ = 0.125 (corresponding to 0.5 for annual rates), respectively. Regarding fiscal policy, the automatic stabilizer, wg, is set to 0.4 in our instrument rules (Moons et al, 2007). To ensure stability of debt accumulation process, the feedback on past debt takes the value wb = 0.02 (Corsetti et al, 2009).…”

Section: Calibrationmentioning

confidence: 99%

Fiscal Policy, Monetary Regimes and Current Account Dynamics

Herz¹,

Hohberger

2013

Rev International Economics

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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. © 2012 by Stefan Hohberger and Bernhard Herz. All rights reserved. Any reproduction, publication and reprint in the form of a different publication, whether printed or produced electronically, in whole or in part, is permitted only with the explicit written authorization of the authors. Terms of use: Documents in AbstractThe serious current account imbalances which have developed within the euro area over the last decade are at the core of the current financial crisis. For the members of the currency union fiscal policy has gained in importance due to the loss of monetary policy as an autonomous policy instrument. Based on a small open economy DSGE model with fiscal feedback rules, we analyze dynamic macroeconomic responses in particular of the current account to different shocks under alternative exchange rate regimes. Our results indicate that entry into monetary union and the subsequent loss of national monetary policy make the economy more vulnerable to a productivity shock and leads to higher variability of the real exchange rate and the current account. On the contrary, for a risk premium shock, an entry into EMU implies lower variability of most macroeconomic variables, but a higher persistence in the adjustment process of the current account. For both shocks, a countercyclical fiscal response to the current account stabilizes most macroeconomic variables better than a conventional countercyclical response to output, independently of the underlying exchange rate regime. Stabilizing the current account via fiscal policy intervention comes at the price of higher variability of output in the short-run, however. JEL classification: E61, E62, E52, F41

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Monetary policy in the New-Keynesian model: An application to the Euro Area

Cited by 19 publications

References 42 publications

Partially Anticipated Monetary Policy Shocks – Are They Stabilizing or Destabilizing?

Partially Anticipated Monetary Policy Shocks – Are They Stabilizing or Destabilizing?

Financial Cycle, Business Cycle and Monetary Policy: Evidence from Four Major Economies

Fiscal Policy, Monetary Regimes and Current Account Dynamics

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