Monetary Policy Under Rule-of-Thumb Consumers and External Habits: An International Empirical Comparison

46 Pages Posted: 23 Feb 2006

See all articles by Giovanni Di Bartolomeo

Giovanni Di Bartolomeo

Sapienza University of Rome, Department of Economics and Law

Lorenza Rossi

University of Rome Tor Vergata - Faculty of Economics; National Institute of Statistics (Istat)

Massimiliano Tancioni

Sapienza University of Rome, Department of Public Economics

Date Written: Febraury 2006

Abstract

This paper develops and estimates a simple New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model with rule-of-thumb consumers and external habits. Our theoretical model has a closed-form solution which allows the analytical derivation of its dynamical and stability properties. These properties are analyzed and discussed in the light of their implications for the efficacy and the calibration of the conduct of the monetary policy. The model is then evaluated empirically, employing numerical simulations based on Monte Carlo Bayesian estimates of the structural parameters and impulse response analyses based on weakly identified SVECMs. The estimates are repeated for each of the G7 national economies. Providing single country estimates and simulations, we derive some indications on the relative efficacy of monetary policy and of its potential asymmetric effects resulting from the heterogeneity of the estimated models.

Keywords: Rule-of-thumb, habits, monetary policy transmission, price puzzle, DSGE New Keynesian model, monetary policy, SVECM and Monte Carlo Bayesian estimators

Suggested Citation

Di Bartolomeo, Giovanni and Rossi, Lorenza and Tancioni, Massimiliano, Monetary Policy Under Rule-of-Thumb Consumers and External Habits: An International Empirical Comparison (Febraury 2006). Available at SSRN: https://ssrn.com/abstract=885773 or http://dx.doi.org/10.2139/ssrn.885773

Giovanni Di Bartolomeo (Contact Author)

Sapienza University of Rome, Department of Economics and Law ( email )

via Castro del Laurenziano 9
Roma, 00191
Italy

Lorenza Rossi

University of Rome Tor Vergata - Faculty of Economics ( email )

Via Columbia n.2
Rome, rome 00100
Italy

National Institute of Statistics (Istat)

Via Cesare Balbo 16
00184 Rome, 0185
Italy

Massimiliano Tancioni

Sapienza University of Rome, Department of Public Economics ( email )

Piazzale Aldo Moro 5
Roma, Rome 00185
Italy

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