Unrestricted reduced form vector autoregressive (VAR) models have become a dominant research strategy in empirical macroeconomics since Sims (1980) critique of traditional macroeconometric modeling. They are however subjected to the curse of dimensionality. In this paper we propose...

We connect two major strands of the recent monetary policy literature, i) the search for well microfounded optimising models consistent with macroeconomic data, especially persistence in inflation, and ii) the wealth of newly available microeconomic data on price changing behaviour from the...

A manifestation of the Federal Reserve Board's increased transparency has been Chairman Greenspan's method of communication. The purpose of this paper is to establish the positive aspects of his speeches, testimonies and FOMC statements on financial market variables. This analysis is undertaken...

Papers estimating the reaction function of the Bundesbank generally find that ist monetary policy from the 1970s to 1998 can well be captured by a standard Taylor rule according to which the central bank responds to the output gap and to deviations of inflation from target, but not to monetary...

In this paper we consider the quadratic optimal control problem with regime shifts and forward-looking agents. This extends the results of Zampolli (2003) who considered models without forward-looking expectations. Two algorithms are presented: The first algorithm computes the solution of a...

We examine the performance and robustness properties of monetary policy rules in an estimated macroeconomic model in which the economy undergoes structural change and where private agents and the central bank possess imperfect knowledge about the true structure of the economy. Private agents...