We estimate the ECB's monetary policy reaction function by using real time Eurosystem/ECB staff macroeconomic projection data, which are presented to the ECB's Governing Council when it assesses the monetary policy stance in the euro area. Alternative specifications of the reaction function...

The aim of the present analysis is to shed light on the question whether Central Banks should publish their macroeconomic forecasts, and what could possibly be gained in monetary policy if they did so. We show that disclosing the Central Bank's assessment of the prevailing inflationary pressures...

Recent models of monetary policy have analysed the desirability of different optimal and ad hoc interest-rate rules under the restrictive assumption that forecasts of the private sector and central bank are homogeneous. In this paper, we study from a learning perspective the implications of...

Expectations play a central role in modern macroeconomics. The econometric learning approach, in line with the cognitive consistency principle, models agents as forming expectations by estimating and updating subjective forecasting models in real time. This approach provides a stability test for...

We apply textual analysis to extract the tone (sentiment) from the introductory statements to the ECB’s press conferences regarding economic outlook. By combining this information with Eurosystem/ECB staff macroeconomic projections, we are able to directly estimate the Governing Council’s...

We examine global dynamics under learning in New Keynesian models with price level targeting that is subject to the zero lower bound. The role of forward guidance is analyzed under transparency about the policy rule. Properties of transparent and non-transparent regimes are compared to each...

We analyze the economic performance of different monetary policy strategies, or rules, in a low interest rate environment, using simulations with a DSGE model which has been estimated for the euro area. We study how often the effective lower bound of interest rates (ELB) is likely to bind, and...

With a few unfortunate exceptions the last three decades have seen reductions in inflation around the world to the point that many would argue that further improvements in price stability would offer only limited welfare gains. This experience is the result of many factors, some of which are...

We examine global economic dynamics under infinite-horizon learning in a New Keynesian model in which the interest-rate rule is subject to the zero lower bound. As in Evans, Guse and Honkapohja, European Economic Review (2008), we find that under normal monetary and fiscal policy the intended...

This paper considers the performance of average inflation targeting (AIT) policy in a New Keynesian model with adaptive learning agents. Our analysis raises concerns regarding robustness of AIT when agents have imperfect knowledge. In particular, the target steady state can be locally unstable...