In New Keynesian models favourable cost-push shocks lower inflation and increase output. Yet, when the central bank's inflation target is not perfectly observed these shocks turn contractionary as agents erroneously perceive a temporary reduction in the target. This effect is amplified when...

The paper compares the main monetary policy strategies to assess which one is the best performing in terms of both minimising the volatility of inflation and the output-gap and reducing the probability of falling into a liquidity trap. The strategies differ in the degree of history dependence...

In past years there have been suggestions for monetary policy to engineer higher inflation expectations to stimulate spending. We examine the relationship between the inflation expectations of firms and their investment plans using Italian business survey data over the period 2012-2016. We show...

Using Italian data from Twitter, we employ textual data and machine learning techniques to build new real-time measures of consumers' inflation expectations. First, we select some relevant keywords to identify tweets related to prices and expectations thereof. Second, we build a set of daily...

This paper evaluates the macroeconomic effects of a monetary and fiscal policy mix implemented in a two-region monetary union in response to the COVID-19 shock. The pandemic is modelled as a mix of recessionary demand and supply shocks affecting both regions simultaneously and symmetrically,...

A New Keynesian model calibrated to the euro area is used to evaluate the stabilization properties of alternative monetary policy strategies when the natural interest rate is low (‘new normal’) and the probability of reaching the effective lower bound (ELB) is non-negligible. Price level...

The applied literature on adaptive learning has mostly focused on small, linear models, with homogenous expectations. In non-linear models heterogeneous expectations prevail and the process through which agents select (and change) a forecasting model becomes a necessary ingredient of the...

he paper assesses the effects of increasing competition in the service sector in Italy which, based on cross-country comparisons, is the OECD country with the highest markups in non-manufacturing industries. We propose a two-region (Italy and the rest of the euro area) dynamic general...

Even low levels of trend inflation substantially affect the dynamics of a basic new Keynesian DSGE model when monetary policy is conducted by a contemporaneous Taylor rule. Positive trend inflation shrinks the determinacy region. Neither the Taylor principle, which requires the inflation...