We estimate the natural rate of interest for the US and the euro area in a semi-structural model comprising a Taylor rule. Our estimates feature key elements of Laubach and Williams (2003), but are more consistent with using conventional policy rules: we model inflation to be stationary, with...

In this paper we estimate simple Taylor rules paying particular attention to interest rate smoothing. Following English, Nelson, and Sack (2002), we employ a model in first differences to gain some insights into the presence and signifcance of the degree of partial adjustment as opposed to a...

The ECB objective is set in terms of year on year growth rate of the Euro area HICP. Nonetheless, a good deal of attention is given to national data by market analysts when they try to anticipate monetary policy moves. In this paper we use the Generalized Dynamic Factor model to develop a set of...

We develop and estimate a stylized micro-founded model of the US economy. Next we compute the parameters of a simple interest rate policy rule that maximizes the unconditional mean of utility. We show that such a welfare-based rule lies close to the Taylor efficiency frontier. A counterfactual...

During the turbulent 1970s and 1980s the Bundesbank established an outstanding reputation in the world of central banking. Germany achieved a high degree of domestic stability and provided safe haven for investors in times of turmoil in the international financial system. Eventually the...

In this paper we present an extension of the Taylor model with staggered wages in which wage-setting is also influenced by reference norms (i.e. by benchmark wages). We show that reference norms can considerably increase the persistence of inflation and the extent of real wage rigidity but that...

Research with Keynesian-style models has emphasized the importance of the output gap for policies aimed at controlling inflation while declaring monetary aggregates largely irrelevant. Critics, however, have argued that these models need to be modified to account for observed money growth and...

Policymakers do not always follow a simple rule for setting policy rates for various reasons and thus their choices are co-driven by a decision to follow a rule or not. Consequently, some observations are censored and cause bias in conventional estimators of typical Taylor rules. To account for...