In 2007 all ECB publications feature a motif taken from the €20 banknote. This paper can be downloaded without charge from

We use a micro-founded macroeconometric modeling framework to investigate the design of monetary policy when the central bank faces uncertainty about the true structure of the economy. We apply Bayesian methods to estimate the parameters of the baseline specification using postwar U.S. data and then determine the policy under commitment that maximizes household welfare. We find that the performance of the optimal policy is closely matched by a simple operational rule that focuses solely on stabilizing nominal wage inflation. Furthermore, this simple wage stabilization rule is remarkably robust to uncertainty about the model parameters and to various assumptions regarding the nature and incidence of the innovations. However, the characteristics of optimal policy are very sensitive to the specification of the wage contracting mechanism, thereby highlighting the importance of additional research regarding the structure of labor markets and wage determination.

Perhaps the most important advance in the monetary policy literature over the past twenty years is the explicit recognition that policy behavior is purposeful and responds endogenously to the state of the economy. Substantial progress has been made by research that examines

Sluggish responses of prices and inflation to monetary shocks in an inventory model of money demand ∗

Abstract not found

I would like to thank Lutz Weinke for calling my attention to a mistake in my previous analysis of this model, Larry Christiano for helpful discussions, and Mauro Roca for

This paper explores the effects of using alternative combinations of observables for the estimation of Dynamic Stochastic General Equilibrium (DSGE) models. I find that the estimation of structural parameters describing the Taylor rule and sticky contracts in prices and wages is particularly sensitive to the set of observables. In terms of the model’s predictions, the exclusion of some observables may lead to estimated parameters with unexpected outcomes, such as recessions following a positive technology shock. More importantly, three ways to assess different sets of observables are proposed. These measures favor a dataset consisting of 7 observables.

The paper presents the Bayesian estimation of a Dynamic General Equilibrium model for the Polish data. The structural parameters of the original model were calibrated and the model was used to in a context of accounting for the welfare cost of business cycles and investigating the monetary policy. This paper extends the previous analysis by applying the Bayesian methods to estimate all structural parameters and by illustrating the analysis with Polish data. Obtained results present the prior and posterior distributions of the parameters as well as parameters characterising shocks.

The imperfect nature of resource mobility plays a surprisingly small role in most policy models. In the standard benchmark new Keynesian model, for example, it is costly for firms to adjust their selling prices, but these same firms can costlessly hire and fire workers and both workers and capital can costlessly shift from one firm to another. In this paper, I review some of the implications for monetary policy of imperfect resource mobility, distinguishing between its role in altering the transmission mechanism of monetary policy and its role in affecting the goals of policy. (JEL E52, E58, J64). 1

We determine and estimate the feedback variables for tax rates which capture the automatic stabilizing behavior of fiscal policy within a DSGE model. To that end we employ the working hypothesis that the fiscal feedback rules share similar characteristics with the Taylor-rule in monetary economics: the empirically observed rule itself is not optimal but its feedback variables are the choice of a welfare-maximizing policymaker. We determine investment for the tax rate on capital income and hours worked for the tax rate on labor income as most important from a normative point of view. What is more, we find strong empirical support for those feedback rules in comparison to common feedback rules in the literature. JEL classification: E62, H30, C51.