Information variables for monetary policy in an estimated structural model of the euro area |
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Authors: | Francesco Lippi |
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Institution: | a Bank of Italy and CEPR, Research Department, Via Nazionale 91, 00184 Rome, Italy b Bank of Italy, Italy |
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Abstract: | A small scale new keynesian model for the euro area is estimated with maximum likelihood under the assumptions of imperfect information and discretionary monetary policy. The estimated parametrization of this widely used dynamic stochastic model unveils the monetary authorities’ objectives and the information content of two indicator variables: monetary aggregates and real unit labour costs. The results highlight a significant policy concern about interest-rate smoothing and inflation; almost no concern for output gap stabilization emerges. Regarding indicator variables, unit labour costs provide information on potential output that is helpful for stabilization policy; no useful information role emerges for monetary aggregates. |
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Keywords: | E4 E5 |
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