The New Area-Wide Model II: An Extended Version of the ECB’s Micro-Founded Model for Forecasting and Policy Analysis with a Financial Sector

136 Pages Posted: 20 Nov 2018

See all articles by Günter Coenen

Günter Coenen

European Central Bank (ECB)

Peter Karadi

European Central Bank (ECB) - Directorate General Research

Sebastian Schmidt

European Central Bank (ECB)

Anders Warne

European Central Bank (ECB)

Date Written: November 19, 2018

Abstract

This paper provides a detailed description of an extended version of the ECB’s New Area-Wide Model (NAWM) of the euro area (cf. Christoffel, Coenen, and Warne 2008). The extended model—called NAWM II—incorporates a rich financial sector with the threefold aim of (i) accounting for a genuine role of financial frictions in the propagation of economic shocks and policies and for the presence of shocks originating in the financial sector itself, (ii) capturing the prominent role of bank lending rates and the gradual interest-rate pass-through in the transmission of monetary policy in the euro area, and (iii) providing a structural framework useable for assessing the macroeconomic impact of the ECB’s large-scale asset purchases conducted in recent years. In addition, NAWM II includes a number of other extensions of the original model reflecting its practical uses in the policy process over the past ten years.

Keywords: DSGE modelling, Bayesian inference, financial frictions, forecasting, policy analysis, euro area

JEL Classification: C11, C52, E30, E37, E58

Suggested Citation

Coenen, Günter and Karadi, Peter and Schmidt, Sebastian and Warne, Anders, The New Area-Wide Model II: An Extended Version of the ECB’s Micro-Founded Model for Forecasting and Policy Analysis with a Financial Sector (November 19, 2018). ECB Working Paper No. 2200. Available at SSRN: https://ssrn.com/abstract=3287647

Günter Coenen (Contact Author)

European Central Bank (ECB) ( email )

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

Peter Karadi

European Central Bank (ECB) - Directorate General Research ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

HOME PAGE: http://sites.google.com/site/pkaradi696/

Sebastian Schmidt

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Anders Warne

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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