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The new area-wide model of the euro area: a micro-founded open-economy model for forecasting and policy analysis

Anders Warne, Günter Coenen () and Kai Christoffel

No 944, Working Paper Series from European Central Bank

Abstract: In this paper, we outline a version of the New Area-Wide Model (NAWM) of the euro area designed for use in the (Broad) Macroeconomic Projection Exercises regularly undertaken by ECB/Eurosystem staff. We present estimation results for the NAWM that are obtained by employing Bayesian inference methods and document the properties of the estimated model by reporting its impulse-response functions and forecast-error-variance decompositions, by inspecting the model-based sample moments, and by examining the model's forecasting performance relative to a number of benchmarks, including a Bayesian VAR. We finally consider several applications to illustrate the potential contributions the NAWM can make to forecasting and policy analysis. JEL Classification: C11, C32, E32, E37

Keywords: Bayesian inference; DSGE modelling; euro area; forecasting; open-economy macroeconomics; policy analysis (search for similar items in EconPapers)
Date: 2008-10
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