Taylor Rule Under Rule-of-Thumb Consumers and External Habits: An International Comparison

29 Pages Posted: 27 Jul 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: July 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 that allows us to derive its dynamical and stability properties. The model is also evaluated by running numerical simulations based on Monte Carlo Bayesian estimates of the structural parameters. 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 model structures.

Keywords: Rule-of-thumb, habits, monetary policy transmission, determinacy, New Keynesian DSGE model, monetary policy, Monte Carlo Bayesian estimators

JEL Classification: C11, C13, E32, E52

Suggested Citation

Di Bartolomeo, Giovanni and Rossi, Lorenza and Tancioni, Massimiliano, Taylor Rule Under Rule-of-Thumb Consumers and External Habits: An International Comparison (July 2006). Available at SSRN: https://ssrn.com/abstract=918874 or http://dx.doi.org/10.2139/ssrn.918874

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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