Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153376
Year of Publication: 
2008
Series/Report no.: 
ECB Working Paper No. 942
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
Advances in the development of Dynamic Stochastic General Equilibrium (DSGE) models towards medium-scale structural frameworks with satisfying data coherence have considerably enhanced the range of analytical tools well-suited for monetary policy evaluation. The present paper intends to make a step forward in this direction: using US data over the Volker-Greenspan sample, we perform a DGSE-VAR estimation of a medium-scale DSGE model very close to Smets and Wouters [2007] specification, where monetary policy is set according to a Ramsey-planner decision problem. Those results are then contrasted with the DSGE-VAR estimation of the same model featuring a Taylortype interest rate rule. Our results show in particular that the restrictions imposed by the welfare-maximizing Ramsey policy deteriorates the empirical performance with respect to a Taylor rule specification. However, it turns out that, along selected conditional dimensions, and notably for productivity shocks, the Ramsey policy and the estimated Taylor rule deliver similar economic propagation.
Subjects: 
Bayesian estimation
DSGE Models
optimal monetary policy
JEL: 
E4
E5
F4
Document Type: 
Working Paper

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