Inflation models, optimal monetary policy and uncertain unemployment dynamics: Evidence from the US and the euro area

Carlo Altavilla and Matteo Ciccarelli

Discussion Papers from D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy

Abstract: This paper explores the role that model uncertainty plays in determining the effect of monetary policy shocks on unemployment dynamics in the euro area and the US. We specify a range of BVARs that differ in terms of variables, lag structure, and the way the inflation process is modelled. For each model the central bank sets the interest rate minimizing a loss function. Given this solution, we quantify the impact of a monetary policy shock on unemployment for each model, and measure the degree of uncertainty as represented by the dispersion of both the policy rule parameters and the impulse response functions between models. The comparative evidence from the US and the euro area data indicates that model uncertainty is indeed an important feature, and that a model combination strategy might be a valuable advise to policymakers.

Keywords: Inflation models; Unemployment; Model uncertainty; Taylor rule; Impulse response analysis (search for similar items in EconPapers)
JEL-codes: C53 E24 E37 (search for similar items in EconPapers)
Date: 2008-06-30
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://economia.uniparthenope.it/ise/sito/DP/DP_8_2008.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to economia.uniparthenope.it:80 (A connection attempt failed because the connected party did not properly respond after a period of time, or established connection failed because connected host has failed to respond.)

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:prt:dpaper:8_2008

Access Statistics for this paper

More papers in Discussion Papers from D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy Contact information at EDIRC.
Bibliographic data for series maintained by Antonietta Milano ( this e-mail address is bad, please contact ).