Macroeconomic Modeling for Monetary Policy Evaluation

By J. Gaĺı, M. Gertler. 2007

354 citations recorded by the source corpus.

We describe some of the main features of the recent vintage macroeconomic models used for monetary policy evaluation. We point to some of the key differences with respect to the earlier generation of macro models, and highlight the insights for policy that these new frameworks have to offer. Our discussion emphasizes two key aspects of the new models: the significant role of expectations of future policy actions in the monetary transmission mechanism, and the importance for the central bank of tracking of the flexible price equilibrium values of the natural levels of output and the real interest rate. We argue that both features have important implications for the conduct of monetary policy.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/fd95f249e26359142bca0317ba4e63baf9ee07ec

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Citations in the corpus

Macroeconomic Policy in DSGE and Agent-Based Models (2012, neutral): “Electronic copy available at: http://ssrn.com/abstract=2011717 Keywords: Economic Policy, Monetary and Fiscal Policies, New Neoclassical Synthesis, New Keynesian Models, DSGE Models, Agent-Based Computational Economics, AgentBased Models, Great Recession, Crisis.”
Policy Analysis Using DSGE Models: An Introduction (2010, background): “2 A simple exposition of this class of models can be found in Galí and Gertler (2007).”
Has U.S. Monetary Policy Tracked the Efficient Interest Rate (2014, neutral): “Its prior, centered around 0.1, is somewhat higher than177 typical estimates of the New Keynesian Phillips curve (e.g. Gaĺı and Gertler, 2007; Sbordone, 2002), but178 consistent with the low degree of price stickiness found in microeconomic studies such as Bils and Klenow179 (2004), given…”
The Failure of Models that Predict Failure: Distance, Incentives and Defaults (2010, neutral): “2In the context of monetary policy, Gali and Gertler (2007) discuss the impact the Lucas critique has had on models used by central bankers across the world.”
Using monetary policy to stabilize economic activity (2009, background): “The framework that underpins most modern policy models combines the assumption of dynamic optimizing behavior by private agents with nominal rigidities (e.g., Clarida, Galí, and Gertler 1999; Woodford 2003; Galí and Gertler 2007; Galí 2008; see also Walsh 2009, ch. 8).”
The New Area-Wide Model of the Euro Area: A Micro-Founded Open-Economy Model for Forecasting and Policy Analysis (2008, background): “Yet we acknowledge that the employed output gap measure—the deviation of actual output from the stochastic trend implied by the permanent technology shock—has no strong theoretical basis (cf. Gaĺı and Gertler, 2007).”
New Consensus Macroeconomics: A Critical Appraisal (2009, background): “Monetary policy 3 Goodfriend (2007) refers to a number of examples: notably New Zealand and Canada were the first countries to adopt the economic policy implications of the NCM framework in the early 1990s.”
Stock market response to monetary and fiscal policy shocks: Multi-country evidence (2013, neutral): “Even though a significant number of past studies have concentrated their attention on the relationship between monetary policy and stock market performance (see, inter alia, Bjornland and Leitemo, 2009; Conover et al., 1999; Fama and French, 1989; Gali and Gertler, 2007; Gertler and Gilchrist, 1993;”