Term Structure and the Estimated Monetary Policy Rule in the Eurozone

Ramón Maria-Dolores and Jesús Vázquez Pérez

No 1988-088X, DFAEII Working Papers from University of the Basque Country - Department of Foundations of Economic Analysis II

Abstract: In this paper we estimate a standard version of the New Keynesian Monetary (NKM) model augmented with term structure in order to analyze two issues. First, we analyze the effect of introducing an explicit term structure channel in the NKM model on the estimated parameter values of the model, with special emphasis on the interest rate smoothing parameter using data for the Eurozone. Second, we study the ability of the model to reproduce some stylized facts such as highly persistent dynamics, the weak comovement between economic activity and inflation, and the positive, strong comovement between interest rates observed in actual Eurozone data. The estimation procedure implemented is a classical structural method based on the indirect inference principle.

Keywords: NKM model; term structure; policy rule; indirect inference (search for similar items in EconPapers)
Date: 2008
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Journal Article: Term structure and the estimated monetary policy rule in the Eurozone (2008)
Working Paper: Term structure and the estimated monetary policy rule in the eurozone (2008)
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Dpto. de Fundamentos del Análisis Económico II, = Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain

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