Differences in Interest Rate Policy at the ECB and the Fed: An Investigation with a Medium-Scale DSGE Model |
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| Authors: | JEAN-GUILLAUME SAHUC,FRANK SMETS&dagger |
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| Affiliation: | Jean-Guillaume Sahuc;is a Senior Economist at the Directorate Research of the Banque de France and is also affiliated with Audencia School of Management (E-mail:) . Frank Smets;is Deputy Director General at the Directorate General Research of the European Central Bank and is also affiliated with CEPR and the University of Ghent (E-mail:). |
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| Abstract: | ![]()
Using two estimated models for the euro area and the United States, this paper investigates whether the observed difference in the amplitude of the interest rate cycle since 1999 in both areas is due to differences in the estimated monetary policy reaction function, differences in the structure of the economy or differences in the size and nature of the shocks hitting both economies. The paper concludes that differences in the type, size and persistence of shocks in both areas can largely explain the different interest rate setting. |
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| Keywords: | C51 E52 E58 |
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