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The economic consequences of Euro-area macro-modelling shortcuts
[journal article]
Monteforte, Libero; Siviero, Stefano
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Please use the following Persistent Identifier (PID) to cite this document:http://nbn-resolving.de/urn:nbn:de:0168-ssoar-242456
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| Abstract | Should euro-area economies be modelled in an aggregate (area-wide) fashion or in a disaggregate (multi-country) one? This paper tackles that question from both a statistical and an economic viewpoint. From a statistical viewpoint, aggregation bias criteria are found to signal that the degree of structural heterogeneity among euro-area economies is such that the loss of information entailed by an aggregate modelling approach may be far from trifling. From an economic viewpoint, we investigate the following issue: Are those statistically detectable heterogeneities of any practical relevance when it comes to supporting monetary policy decision-making? To provide an answer to this question, we compute simple optimal monetary policy reaction functions on the basis of either an aggregate model or a disaggregate one, and compare the associated welfare losses. The results suggest that the welfare under-performance of an area-wide-model-based rule is not only non negligible, but also robust with respect to a number of sensitivity analyses. |
| Classification | European Politics; Economic Policy; Economic Statistics, Econometrics, Business Informatics |
| Free Keywords | Euro area; aggregation; monetary policy rules; robustness; Geldpolitik; Regelgebundene Politik; Modell-Spezifikation; Aggregation; Mehr-Länder-Modell; Europäische Wirtschafts- und Währungsunion; EU-Staaten |
| Document language | English |
| Publication Year | 2008 |
| Page/Pages | p. 2399-2415 |
| Journal | Applied Economics, 42 (2008) 19 |
| DOI | http://dx.doi.org/10.1080/00036840701858075 |
| Status | Postprint; reviewed |
| Licence | PEER Licence Agreement (applicable only to documents from PEER project) |
| Document Type | journal article |
