Modernizing Central Banks’ Large Semi-Structural Projection Models: The Role of Model-Consistent Expectations

Stéphane Adjemian, Nikola Bokan, Matthieu Darracq Pariès, Georg Müller and Srecko Zimic
Additional contact information
Stéphane Adjemian: Université du Mans
Nikola Bokan: European Central Bank
Matthieu Darracq Pariès: European Central Bank
Georg Müller: European Central Bank
Srecko Zimic: European Central Bank

International Journal of Central Banking, 2026, vol. 22, issue 3, 253-294

Abstract: We enrich the ECB’s modeling toolkit by incorporating model-consistent expectations into the workhorse projection model, ECB-BASE. This enables analysis of announced policy shifts and anticipation effects. We nest VAR expectations, model-consistent expectations, and several combinations of the two, termed as hybrid settings. In addition, the Dynare computational environment has been advanced in several dimensions to enable these new modeling capabilities. We then examine monetary policy implications of varying expectation formation. Simulations indicate that forward-looking expectations result in smoother output responses but front-loaded price reactions to policy shocks. By applying the model to assess recent supply shocks that have led to a surge in inflation, we find that forward-looking expectations from the private sector imply increased macroeconomic volatility, necessitating an early policy response.

Date: 2026
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.ijcb.org/journal/v22n3/modernizing-cen ... on-models-role-model (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2026:q:3:a:6

Access Statistics for this article

International Journal of Central Banking is currently edited by Loretta J. Mester

More articles in International Journal of Central Banking from International Journal of Central Banking
Bibliographic data for series maintained by Bank for International Settlements ().