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dc.contributor.authorChen, Xiaoshanen_UK
dc.contributor.authorKirsanova, Tatianaen_UK
dc.contributor.authorLeith, Campbellen_UK
dc.description.abstractWe estimate a New Keynesian DSGE model for the Euro area under alternative descriptions of monetary policy (discretion, commitment or a simple rule) after allowing for Markov switching in policy maker preferences and shock volatilities. This reveals that there have been several changes in Euro area policy making, with a strengthening of the anti-inflation stance in the early years of the ERM, which was then lost around the time of German reunification and only recovered following the turnoil in the ERM in 1992. The ECB does not appear to have been as conservative as aggregate Euro-area policy was under Bundesbank leadership, and its response to the financial crisis has been muted. The estimates also suggest that the most appropriate description of policy is that of discretion, with no evidence of commitment in the Euro-area. As a result although both ‘good luck' and ‘good policy' played a role in the moderation of inflation and output volatility in the Euro-area, the welfare gains would have been substantially higher had policy makers been able to commit. We consider a range of delegation schemes as devices to improve upon the discretionary outcome, and conclude that price level targeting would have achieved welfare levels close to those attained under commitment, even after accounting for the existence of the Zero Lower Bound on nominal interest rates.en_UK
dc.relationChen X, Kirsanova T & Leith C (2014) An Empirical Assessment of Optimal Monetary Policy Delegation in the Euro Area. Stirling Economics Discussion Paper, 2014-11.en_UK
dc.relation.ispartofseriesStirling Economics Discussion Paper, 2014-11en_UK
dc.subjectBayesian Estimationen_UK
dc.subjectInterest Rate Rulesen_UK
dc.subjectOptimal Monetary Policyen_UK
dc.subjectGreat Moderationen_UK
dc.subjectZero Lower Bounden_UK
dc.subjectFinancial Crisisen_UK
dc.subjectGreat Recessionen_UK
dc.titleAn Empirical Assessment of Optimal Monetary Policy Delegation in the Euro Areaen_UK
dc.typeWorking Paperen_UK
dc.type.statusAM - Accepted Manuscripten_UK
dc.subject.jelE58: Central Banks and Their Policiesen_UK
dc.subject.jelE32: Business Fluctuations; Cyclesen_UK
dc.subject.jelC11: Bayesian Analysis: Generalen_UK
dc.subject.jelC51: Model Construction and Estimationen_UK
dc.subject.jelC52: Model Evaluation, Validation, and Selectionen_UK
dc.subject.jelC54: Quantitative Policy Modelingen_UK
dc.contributor.affiliationUniversity of Glasgowen_UK
dc.contributor.affiliationUniversity of Glasgowen_UK
rioxxterms.typeWorking paperen_UK
local.rioxx.authorChen, Xiaoshan|en_UK
local.rioxx.authorKirsanova, Tatiana|en_UK
local.rioxx.authorLeith, Campbell|en_UK
local.rioxx.projectInternal Project|University of Stirling|
Appears in Collections:Economics Working Papers

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