The specification of an optimizing model of the monetary transmission mechanism requires selecting a policy regime, commonly commitment or discretion. In this paper, we propose a new procedure for testing optimal monetary policy, relying on moment inequalities that nest commitment and discretion...

Recent empirical studies have found evidence of unstable long run money demand functions if recent data are used. If the link between money balances and the macroeconomy is fragile, the rationale of monetary aggregates in the ECB strategy has to be doubted. In contrast we present a "stable''...

The econometrics literature contains a variety of two-sided tests for unknown breakpoints in time-series models with one or more parameters. This paper derives an analogous one-sided test that takes into account the direction of the change for a single parameter. In particular, we propose a sup...

Money growth in the euro area has exceeded its target since 2001. Likewise, recent empirical studies did not find evidence in favour of a stable long run money demand function. The equation appears to be increasingly unstable if more recent data are used. If the link between money balances and...

We test for bias and efficiency of the ECB inflation forecasts using a confidential dataset of ECB macroeconomic quarterly projections. We investigate whether the properties of the forecasts depend on the level of inflation, by distinguishing whether the inflation observed by the ECB at the time...

We test for bias and efficiency of the ECB inflation forecasts using a confidential dataset of ECB macroeconomic quarterly projections. We investigate whether the properties of the forecasts depend on the level of inflation, by distinguishing whether the inflation observed by the ECB at the time...

We test for state-dependent bias in the European Central Bank's inflation projections. We show that the ECB tends to underpredict when the observed inflation rate at the time of forecasting is higher than an estimated threshold of 1.8%. The bias is most pronounced at intermediate forecasting...

We propose a new method for medium-term forecasting using exogenous information. We first show how a shifting-mean autoregressive model can be used to describe characteristic features in inflation series. This implies that we decompose the inflation process into a slowly moving nonstationary...