Arbeitspapier
Complexity and monetary policy
The complexity resulting from intertwined uncertainties regarding model misspecification and mismeasurement of the state of the economy defines the monetary policy landscape. Using the euro area as laboratory this paper explores the design of robust policy guides aiming to maintain stability in the economy while recognizing this complexity. We document substantial output gap mismeasurement and make use of a new model data base to capture the evolution of model specification. A simple interest rate rule is employed to interpret ECB policy since 1999. An evaluation of alternative policy rules across 11 models of the euro area confirms the fragility of policy analysis optimized for any specific model and shows the merits of model averaging in policy design. Interestingly, a simple difference rule with the same coefficients on inflation and output growth as the one used to interpret ECB policy is quite robust as long as it responds to current outcomes of these variables.
- Language
-
Englisch
- Bibliographic citation
-
Series: CFS Working Paper ; No. 2012/11
- Classification
-
Wirtschaft
Monetary Policy, Central Banking, and the Supply of Money and Credit: General
Monetary Policy
Central Banks and Their Policies
- Subject
-
Financial Crisis
Complexity
Monetary Policy
Model Uncertainty
Robust Simple Rules
ECB
Geldpolitik
Regelgebundene Politik
Komplexe Systeme
Modellierung
Risiko
Schätzung
Eurozone
- Event
-
Geistige Schöpfung
- (who)
-
Orphanides, Athanasios
Wieland, Volker
- Event
-
Veröffentlichung
- (who)
-
Goethe University Frankfurt, Center for Financial Studies (CFS)
- (where)
-
Frankfurt a. M.
- (when)
-
2012
- Handle
- URN
-
urn:nbn:de:hebis:30:3-272544
- Last update
-
10.03.2025, 11:45 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Orphanides, Athanasios
- Wieland, Volker
- Goethe University Frankfurt, Center for Financial Studies (CFS)
Time of origin
- 2012
Other Objects (12)
Complexity and monetary policy
Monetary policy, parameter uncertainty and optimal learning
Monetary Policy and Uncertainty about the Natural Unemployment Rate
Money in monetary policy design: Monetary cross-checking in the New-Keynesian model
Money in monetary policy design: Monetary cross-checking in the New-Keynesian Model
Monetary theory and monetary policy: Reflections on the development over the last 150 years
Monetary theory and monetary policy: Reflections on the development over the last 150 years
Economic projections and rules-of-thumb for monetary policy
Insurance policies for monetary policy in the euro area
How to normalize monetary policy in the Euro area
Insurance policies for monetary policy in the Euro area
The decline in euro area inflation and the choice of policy strategy
Complexity and monetary policy
Monetary policy, parameter uncertainty and optimal learning
Monetary Policy and Uncertainty about the Natural Unemployment Rate
Money in monetary policy design: Monetary cross-checking in the New-Keynesian model
Money in monetary policy design: Monetary cross-checking in the New-Keynesian Model
Monetary theory and monetary policy: Reflections on the development over the last 150 years
Monetary theory and monetary policy: Reflections on the development over the last 150 years
Economic projections and rules-of-thumb for monetary policy
Insurance policies for monetary policy in the euro area
How to normalize monetary policy in the Euro area
Insurance policies for monetary policy in the Euro area
The decline in euro area inflation and the choice of policy strategy
Complexity and monetary policy
Monetary policy, parameter uncertainty and optimal learning
Monetary Policy and Uncertainty about the Natural Unemployment Rate
Money in monetary policy design: Monetary cross-checking in the New-Keynesian model
Money in monetary policy design: Monetary cross-checking in the New-Keynesian Model
Monetary theory and monetary policy: Reflections on the development over the last 150 years
Monetary theory and monetary policy: Reflections on the development over the last 150 years
Economic projections and rules-of-thumb for monetary policy
Insurance policies for monetary policy in the euro area
How to normalize monetary policy in the Euro area
Insurance policies for monetary policy in the Euro area