The New Area-Wide Model of the Euro Area: A Micro-Founded Open-Economy Model for Forecasting and Policy Analysis

124 Pages Posted: 19 Oct 2008

See all articles by Kai Philipp Christoffel

Kai Philipp Christoffel

European Central Bank (ECB)

Günter Coenen

European Central Bank (ECB)

Anders Warne

European Central Bank (ECB)

Date Written: October 16, 2008

Abstract

In this paper, we outline a version of the New Area-Wide Model (NAWM) of the euro area designed for use in the (Broad) Macroeconomic Projection Exercises regularly undertaken by ECB/Eurosystem staff. We present estimation results for the NAWM that are obtained by employing Bayesian inference methods and document the properties of the estimated model by reporting its impulse-response functions and forecast-error-variance decompositions, by inspecting the model-based sample moments, and by examining the model's forecasting performance relative to a number of benchmarks, including a Bayesian VAR. We finally consider several applications to illustrate the potential contributions the NAWM can make to forecasting and policy analysis.

Keywords: DSGE modelling, open-economy macroeconomics, Bayesian inference, forecasting, policy analysis, euro area

JEL Classification: C11, C32, E32, E37

Suggested Citation

Christoffel, Kai Philipp and Coenen, Günter and Warne, Anders, The New Area-Wide Model of the Euro Area: A Micro-Founded Open-Economy Model for Forecasting and Policy Analysis (October 16, 2008). ECB Working Paper No. 944, Available at SSRN: https://ssrn.com/abstract=1271865 or http://dx.doi.org/10.2139/ssrn.1271865

Kai Philipp Christoffel (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Günter Coenen

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 7887 (Phone)
+49 69 1344 6575 (Fax)

Anders Warne

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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