Surprising comparative properties of monetary models: Results from a new data base

John Taylor and Volker Wieland

No 7294, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In this paper we investigate the comparative properties of empirically-estimated monetary models of the U.S. economy. We make use of a new data base of models designed for such investigations. We focus on three representative models: the Christiano, Eichenbaum, Evans (2005) model, the Smets and Wouters (2007) model, and the Taylor (1993a) model. Although the three models differ in terms of structure, estimation method, sample period, and data vintage, we find surprisingly similar economic impacts of unanticipated changes in the federal funds rate. However, the optimal monetary policy responses to other sources of economic fluctuations are widely different in the different models. We show that simple optimal policy rules that respond to the growth rate of output and smooth the interest rate are not robust. In contrast, policy rules with no interest rate smoothing and no response to the growth rate, as distinct from the level, of output are more robust. Robustness can be improved further by optimizing rules with respect to the average loss across the three models.

Keywords: Macroeconomic models; Model comparison; Monetary policy rules; Monetary policy shocks; Optimal policy; Robustness and model uncertainty (search for similar items in EconPapers)
JEL-codes: C52 E30 E52 (search for similar items in EconPapers)
Date: 2009-05
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

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Related works:
Working Paper: Surprising Comparative Properties of Monetary Models: Results from a New Data Base (2009)
Working Paper: Surprising comparative properties of monetary models: Results from a new data base (2009)
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