Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/153034 
Authors: 
Year of Publication: 
2006
Series/Report no.: 
ECB Working Paper No. 600
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
This paper estimates a hybrid New Keynesian model on euro area data and evaluates the performance of different simple policy rules and of the optimal unconstrained rule under commitment. The study reaches two main conclusions. First, inflation is found to be mainly forward-looking in the euro area, which implies the optimal policy reaction to cost push shocks is a muted one. Second, a "speed limit" rule of the type recently proposed by Walsh (2003) is able to closely approximate the performance of the optimal rule under commitment. The optimal speed limit rule is also characterised by super-inertia, making it a first difference rule similar to those recently proposed as a possible solution to measurement problems in the level of the natural interest rate and of potential output.
Subjects: 
commitment
euro area
hybrid New Keynesian model
monetary policy rules
speed limit policies
JEL: 
E52
E58
Document Type: 
Working Paper

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