Monetary policy in the New-Keynesian model: An application to the Euro Area |
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| Authors: | Cindy Moons Harry Garretsen Bas van Aarle Jorge Fornero |
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| Affiliation: | aUniversity of Antwerp, Department of Applied Economics, Prinsstraat 13, 2000 Antwerpen, Belgium;bUtrecht School of Economics, Utrecht University, The Netherlands;cCESifo, Munich, Germany;dDepartment of Economics, University of Maastricht, The Netherlands;eEuropainstitut Wirtschaftsuniversitaet Wien, Althanstrasse 39-45, 1090 Wien, Austria |
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| Abstract: | This paper analyzes monetary policy in a stylized New-Keynesian model. A number of issues are focused upon: (i) optimal monetary policy under commitment or discretion versus 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 macroeconomic fluctuations in the Euro Area. |
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| Keywords: | Fiscal policy Monetary policy |
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