This paper compares impulse responses to monetary policy shocks in the euro area countries before the EMU and in the New Member States (NMS) from central-eastern Europe. We mitigate the small sample problem, which is especially acute for the NMS, by using a Bayesian estimation that combines...

Using a small Bayesian dynamic factor model of the euro area we estimate the deviations of output from its trend that are consistent with the behavior of inflation. We label these deviations the output gap. In order to pin-down the features of the model, we evaluate the accuracy of real-time...