This paper quantifies the effects on welfare of misspecified monetary policy objectives in a stylized DSGE model. We show that using inappropriate objectives generates relatively large welfare costs. When expressed in terms of ‘consumption equivalent' units, these costs correspond to permanent...

recent years, the dynamics of M3 in the euro area have been driven by two factors: a strong preference for liquidity, observed between 2001 and 2003, followed by a normalisation, at a relatively moderate pace, of portfolio behaviour; as regards the counterparts, changes in M3 and net external...