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Differences in Interest Rate Policy at the ECB and the Fed: An Investigation with a Medium‐Scale DSGE Model
Author(s) -
SAHUC JEANGUILLAUME,
SMETS FRANK
Publication year - 2008
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2008.00124.x
Subject(s) - dynamic stochastic general equilibrium , interest rate , economics , monetary policy , monetary economics , function (biology) , scale (ratio) , business cycle , econometrics , macroeconomics , physics , quantum mechanics , evolutionary biology , biology
Using two estimated models for the euro area and the United States, this paper investigates whether the observed difference in the amplitude of the interest rate cycle since 1999 in both areas is due to differences in the estimated monetary policy reaction function, differences in the structure of the economy or differences in the size and nature of the shocks hitting both economies. The paper concludes that differences in the type, size and persistence of shocks in both areas can largely explain the different interest rate setting.