Monetary Policy in the Euro Area: Active or Passive?

Alice Albonico, Guido Ascari and Qazi Haque

No 535, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: We estimate a medium-scale DSGE model for the euro area allowing and testing for indeterminacy since the introduction of the euro until mid-2023. Our estimates suggest that the data prefer a model implying a passive monetary policy in the euro area, leading to indeterminacy and self-fulfilling dynamics. However, this preference is fragile, depending on specific technical assumptions that can allow greater degrees of freedom to the indeterminate model. Moreover, indeterminacy yields inflation responses that contradict both standard economic theory and external non-structural evidence on the effects monetary policy shocks.

Keywords: monetary policy; indeterminacy; euro area; business cycle fluctuations; inflation (search for similar items in EconPapers)
JEL-codes: C11 C13 E32 E52 (search for similar items in EconPapers)
Pages: 76
Date: 2024-05, Revised 2025-03
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-eec, nep-mon and nep-opm
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Related works:
Working Paper: Monetary Policy in the Euro Area: Active or Passive? (2024)
Working Paper: Monetary Policy in the Euro Area: Active or Passive? (2024)
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