The Performance and Robustness of Interest-Rate Rules in Models of the Euro Area

Adalid, Ramon and Coenen, Gunter and McAdam, Peter and Siviero, Stefano (2005): The Performance and Robustness of Interest-Rate Rules in Models of the Euro Area. Published in: International Journal of Central Banking , Vol. Volume, No. Number 1 (13 June 2005): pp. 95-132.

Abstract

In this paper, we examine the performance and robustness of optimized interest-rate rules in four models of the euro area that differ considerably in terms of size, degree of aggregation, relevance of forward-looking behavioral elements, and adherence to microfoundations. Our findings are broadly consistent with results documented for models of the U.S. economy: backward-looking models require relatively more aggressive policies with, at most, moderate inertia; rules that are optimized for such models tend to perform reasonably well in forward-looking models, while the reverse is not necessarily true; and, hence, the operating characteristics of robust rules (i.e., rules that perform satisfactorily in all models) are heavily weighted towards those required by backward-looking models.

• Item Type: MPRA Paper
• Language: English
• Keywords: macroeconomic modelling; model uncertainty; monetary policy rules; robustness; euro area
• Subjects: G - Financial Economics > G0 - General > G00 - General; G - Financial Economics > G0 - General

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