On monetary policy rules for the euro area

Miguel Casares

No 415, Working Papers from Banco de España

Abstract: In this paper a New Keynesian model is described and partially estimated for the euro area. The model is then used to analyze the stabilizing properties of alternative monetary policy rules for the euro area: instrument (Taylor-type) rules and targeting rules. Our main finding is that if instrument rules are designed optimally they behave similarly to targeting rules both in terms of performance and robustness. This result is obtained for a variety of ECB preferences on stabilizing inflation, the output gap, and the nominal interest rate. Furthermore, the rule quasi-equivalence is also obtained if the ECB objective function is based on welfare maximization.

Keywords: Instrument rules; targeting rules; euro area (search for similar items in EconPapers)
JEL-codes: E0 E4 E5 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2004-09
References: Add references at CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:0415

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