Technology Shocks and Monetary Policy in an Estimated Sticky Price Model of the Euro Area

Sanvi Avouyi-Dovi and Julien Matheron

Working papers from Banque de France

Abstract: In this paper, we seek to characterize the dynamic effects of permanent technology shocks and the way in which European monetary authorities reacted to these shocks over the past two decades. To do so, we develop an augmented sticky price-sticky wage model of the business cycle, which is estimated by minimizing the distance between theoretical, dynamic responses of key variables to a permanent technology shock and their structural VAR counterparts. In a second step, we conduct a counterfactual experiment consisting to compare these responses with the outcome of the optimal monetary policy. A significant discrepancy emerges between these responses, suggesting the European monetary authorities might not have responded optimally to permanent technology shocks.

Keywords: Sticky prices and wages; Taylor rule; Optimal monetary policy. (search for similar items in EconPapers)
JEL-codes: E31 E32 E58 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://publications.banque-france.fr/sites/defaul ... g-paper_126_2005.pdf (application/pdf)

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:bfr:banfra:126

Access Statistics for this paper

More papers in Working papers from Banque de France Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS. Contact information at EDIRC.
Bibliographic data for series maintained by Michael brassart ().