Evaluating Monetary Policy Rules in Estimated Forward-Looking Models: A Comparison of US and German Monetary Policies

Eric Jondeau and Hervé Le Bihan

Working papers from Banque de France

Abstract: In this paper, we estimate two small, forward-looking, macroeconomic models for the US and Germany and we compare the implied optimal monetary policy rules. Both models have a standard structure: an I-S curve, a Phillips curve, a short term interest-rate rule and a long term interest rate determined by the Expectations Hypothesis. They are intended to fit the data while allowing for some forward-looking behavior. They are estimated from 1968 to 1998, using the full-information maximum-likelihood procedure, so that forward-looking expectations are fully model-consistent. In order to evaluate monetary policy, we compute optimal policy frontiers and we perform some simulations of the model. German optimal monetary policy is found to require a more persistent and slightly stronger response to inflation and output than the US optimal policy.

Keywords: Forward-looking model; monetary policy rules (search for similar items in EconPapers)
JEL-codes: E52 E58 F41 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2000
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Journal Article: Evaluating Monetary Policy Rules in Estimated Forward-Looking Models: A Comparison of US and German Monetary Policies (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:76

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