Towards a Monetary Policy Evaluation Framework

47 Pages Posted: 22 Sep 2008 Last revised: 17 Nov 2021

See all articles by Stephane Adjemian

Stephane Adjemian

Université du Maine - Groupe d' Analyse des Itineraires et Niveaux Salariaux (GAINS); University of Angers - Centre d'Etudes Prospectives d'Economie Mathematique Appliquees a la Planification (CEPREMAP)

Matthieu Darracq Paries

European Central Bank (ECB)

Stephane Moyen

Deutsche Bundesbank - Research Centre

Date Written: September 9, 2008

Abstract

Advances in the development of Dynamic Stochastic General Equilibrium (DSGE) models towards medium-scale structural frameworks with satisfying data coherence have considerably enhanced the range of analytical tools well-suited for monetary policy evaluation. The present paper intends to make a step forward in this direction: using US data over the Volker-Greenspan sample, we perform a DGSE-VAR estimation of a medium-scale DSGE model very close to Smets and Wouters [2007] specification, where monetary policy is set according to a Ramsey-planner decision problem. Those results are then contrasted with the DSGE-VAR estimation of the same model featuring a Taylortype interest rate rule. Our results show in particular that the restrictions imposed by the welfare-maximizing Ramsey policy deteriorates the empirical performance with respect to a Taylor rule specification. However, it turns out that, along selected conditional dimensions, and notably for productivity shocks, the Ramsey policy and the estimated Taylor rule deliver similar economic propagation.

Keywords: DSGE models, Optimal monetary policy, Bayesian estimation

JEL Classification: E4, E5, F4

Suggested Citation

Adjemian, Stéphane A. and Darracq Paries, Matthieu and Moyen, Stephane, Towards a Monetary Policy Evaluation Framework (September 9, 2008). ECB Working Paper No. 942, Available at SSRN: https://ssrn.com/abstract=1265506 or http://dx.doi.org/10.2139/ssrn.1265506

Stéphane A. Adjemian (Contact Author)

Université du Maine - Groupe d' Analyse des Itineraires et Niveaux Salariaux (GAINS) ( email )

72085 Le Mans Cedex 9
France

University of Angers - Centre d'Etudes Prospectives d'Economie Mathematique Appliquees a la Planification (CEPREMAP) ( email )

Ecole Normale Superieure
48 boulevard Jourdan
75014 Paris
France

Matthieu Darracq Paries

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+496913446631 (Phone)
+496913447604 (Fax)

Stephane Moyen

Deutsche Bundesbank - Research Centre ( email )

Wilhelm-Epstein-Str. 14
D-60431 Frankfurt/Main
Germany

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