An Estimated DSGE Model of the Euro Area with Expectations about the Timing and Nature of Liftoff from the Lower Bound

Michaela Haderer

No 2022-05, Working Papers from University of Sydney, School of Economics

Abstract: I investigate the implications of the zero lower bound (ZLB) in a structural New-Keynesian model for the euro area. The medium-scale DSGE model accommodates forward guidance by treating the expected durations of the ZLB constraint as free parameters in estimation. Incorporating professional forecasters’ expectations about the future path of the policy rate provides well-identified estimates of the durations. These estimates indicate that unconventional monetary policy becomes increasingly important from 2018 on. Furthermore, when monetary policy is expected to be passive in its response to inflation after liftoff, forward guidance has weaker effects with deflationary pressures on the economy. Finally, including data from the Covid-19 pandemic in estimation leads to stable estimates and allows an assessment of monetary policy during that period.

Keywords: monetary policy; zero lower bound; forward guidance; liftoff; Covid-19 (search for similar items in EconPapers)
Date: 2022-11
New Economics Papers: this item is included in nep-cba, nep-dge, nep-eec and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:syd:wpaper:2022-05

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