Monetary Policy under Rule-of-Thumb Consumers and External Habits: An International Empirical Comparison

Giovanni Di Bartolomeo (), Lorenza Rossi () and Massimiliano Tancioni

No 97, Working Papers from Sapienza University of Rome, Department of Public Economics

Abstract: This paper develops a simple New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model with rule-of-thumb consumers and external habits. Our theoretical model has a closed-form solution which allows the analytical derivation of its dynamical and stability properties. These properties are analyzed and discussed in the light of their implications for the efficacy and the calibration of the conduct of the monetary policy. The model is then evaluated empirically, employing numerical simulations based on Monte Carlo Bayesian estimates of the structural parameters and impulse response analyses based on weakly identified SVECMs. The estimates are repeated for each of the G7 national economies. Providing single country estimates and simulations, we derive some indications on the relative efficacy of monetary policy and of its potential asymmetric effects resulting from the heterogeneity of the estimated models.

Keywords: Rule-of-thumb; habits; monetary policy transmission; price puzzle; DSGE New Keynesian model; monetary policy; SVECM and Monte Carlo Bayesian estimators. (search for similar items in EconPapers)
Date: Written
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Working Paper: Monetary Policy under Rule-of-Thumb Consumers and External Habits: An International Empirical Comparison (2006)
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