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A small scale macroeconometric model for the Euro-12 area [An article from: Economic Modelling]
Book Details
Author(s)C. Morana
PublisherElsevier
ISBN / ASINB000RR8P2Q
ISBN-13978B000RR8P22
AvailabilityAvailable for download now
MarketplaceUnited States 🇺🇸
Description
This digital document is a journal article from Economic Modelling, published by Elsevier in 2006. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.
Description:
In the paper a small scale macroeconometric model for the Euro area is built, relying on cobreaking and fractional cointegration theory. Several linkages relating key macroeconomic variables are found. Firstly, evidence of a common nonlinear deterministic trend driving the long-run evolution of inflation, nominal interest rates and money growth, determined by medium to long term monetary policy management, is found. Both the quantity theory of money and Fisher's theory of nominal interest rate determination are the economic mechanisms explaining how inflation and nominal interest rates are attracted towards their equilibrium values in the long term. Secondly, evidence of two common long memory factors driving the medium-run evolution of the nominal and real variables, related to output and nominal money growth shocks and short term monetary policy management, is also found. The quantity theory of money, the management of the short term rate by the central bank (Taylor rule), term structure linkages and a present value relationship relating output and real stock market prices growth, are the economic mechanisms explaining the evolution of the macroeconomy in the short to medium term. The macroeconometric model has then been employed to assess the monetary policy strategy of the ECB with respect to the achievement of the price stability objective in the medium term, finding full support for its formulation involving two dimensions, i.e. the monetary pillar and economic pillar.
Description:
In the paper a small scale macroeconometric model for the Euro area is built, relying on cobreaking and fractional cointegration theory. Several linkages relating key macroeconomic variables are found. Firstly, evidence of a common nonlinear deterministic trend driving the long-run evolution of inflation, nominal interest rates and money growth, determined by medium to long term monetary policy management, is found. Both the quantity theory of money and Fisher's theory of nominal interest rate determination are the economic mechanisms explaining how inflation and nominal interest rates are attracted towards their equilibrium values in the long term. Secondly, evidence of two common long memory factors driving the medium-run evolution of the nominal and real variables, related to output and nominal money growth shocks and short term monetary policy management, is also found. The quantity theory of money, the management of the short term rate by the central bank (Taylor rule), term structure linkages and a present value relationship relating output and real stock market prices growth, are the economic mechanisms explaining the evolution of the macroeconomy in the short to medium term. The macroeconometric model has then been employed to assess the monetary policy strategy of the ECB with respect to the achievement of the price stability objective in the medium term, finding full support for its formulation involving two dimensions, i.e. the monetary pillar and economic pillar.
