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Stéphane Adjemian

21 August 2007
WORKING PAPER SERIES - No. 803
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Abstract
The objective of this paper is to examine the main features of optimal monetary policy within a micro-founded macroeconometric framework. First, using Bayesian techniques, we estimate a medium scale closed economy DSGE for the euro area. Then, we study the properties of the Ramsey allocation through impulse response, variance decomposition and counterfactual analysis. In particular, we show that, controlling for the zero lower bound constraint, does not seem to limit the stabilization properties of optimal monetary policy. the Ramsey allocation reasonably well. Such optimal simple operational rules seem to react specifically to nominal wage inflation. Overall, the Ramsey policy together with its simple rule approximations seem to deliver consistent policy messages and may constitute some useful normative benchmarks within medium to large scale estimated DSGE framework. prove the economic micro-foundation and the econometric identification of the structural disturbances. We also present simple monetary policy rules which can "approximate" and implement However, this normative analysis based on estimated models reinforces the need to improve the economic micro-foundation and the econometric identification of the structural disburbances.
JEL Code
E4 : Macroeconomics and Monetary Economics→Money and Interest Rates
E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
31 March 2008
WORKING PAPER SERIES - No. 884
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Abstract
The objective of this paper is to examine the main features of optimal monetary policy cooperation within a micro-founded macroeconometric framework. First, using Bayesian techniques, we estimate a two-country dynamic stochastic general equilibrium (DSGE) model for the United States (US) and the euro area (EA). The main features of the new open economy macroeconomics (NOEM) are embodied in our framework: in particular, imperfect exchange rate pass-through and incomplete financial markets internationally. Each country model incorporates the wide range of nominal and real frictions found in the closed-economy literature: staggered price and wage settings, variable capital utilization and fixed costs in production. Then, using the estimated parameters and disturbances, we study the properties of the optimal monetary policy cooperation through welfare analysis, impulse responses and variance decompositions.
JEL Code
E4 : Macroeconomics and Monetary Economics→Money and Interest Rates
E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
F4 : International Economics→Macroeconomic Aspects of International Trade and Finance
19 September 2008
WORKING PAPER SERIES - No. 942
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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.
JEL Code
E4 : Macroeconomics and Monetary Economics→Money and Interest Rates
E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
F4 : International Economics→Macroeconomic Aspects of International Trade and Finance
13 November 2008
WORKING PAPER SERIES - No. 962
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Abstract
This paper presents first the estimation of a two-country DSGE model for the euro area and the rest-of-the-world including relevant oil-price channels. We then investigate the optimal resolution of the policy tradeoffs emanating from oil-price disturbances. Our simulations show that the inflationary forces related to the use of oil as an intermediate good seem to require specific policy actions in the optimal allocation. However, the direct effects of oil prices should be allowed to exert their mechanical influence on CPI inflation and wage dynamics through the indexation schemes. We also illustrate that any fine-tuning strategy which tries to counteract the direct effects of oil-price changes in headline inflation would prove counterproductive both in terms to stabilization of underlying inflation and by causing unnecessary volatility in the macroeconomic landscape. Finally, it appears that perfect foresight on future oil price developments allows a more rapid absorption of the steady state decline in purchasing power and real national income in the optimal allocation. Through the various expectation channels, economic agents facilitate the necessary adjustments and optimal monetary policy can still tolerate the direct effects of oil price changes on CPI inflation as well as some degree of underlying inflationary pressures in the view of easing partly the burden of downward real wage shifts. Our monetary policy prescriptions have been derived in a modeling framework where oil-price fluctuations are essentially exogenous to policy actions and where expectations are formed under the rational expectations paradigm. Notably, the extension of such conclusions to imperfect knowledge and weak central bank credibility configurations remain challenging fields for further research.
JEL Code
E4 : Macroeconomics and Monetary Economics→Money and Interest Rates
E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
F4 : International Economics→Macroeconomic Aspects of International Trade and Finance