Monetary policy in the new-Keynesian model: an application to the euro-area
Moons, Cindy × van Aarle, Bas Fornero, Jorge Garretsen, Harry #
Journal of Policy Modeling: a Social Science Forum of World Issues vol:29 pages:879-902
This paper analyses monetary policy in a stylized new-Keynesian model. A number of issues are focused upon: (i) optimal monetary policy under commitment or discretion vs. ad-hoc monetary policy based on simple rules, (ii) the effects of fiscal policies and foreign variables on monetary policy, (iii) the effects of fiscal deficit and interest rate smoothing objectives and the role of forward-backward linkages in the model. The model is estimated for the Euro Area. Using simulations of the estimated model, it is analyzed how these aspects might affect monetary policy of the ECB and macro-economic fluctuations in the Euro Area.