PL EN


2009 | 1 | 3 | 211-241
Article title

Solving Forward-Looking Models of Cross-Country Adjustment within the Euro Area

Authors
Content
Title variants
Languages of publication
EN
Abstracts
EN
This article introduces and applies two refinements to the algorithm of solving rational expectations models of a currency union. Firstly, building upon Klein (2000), it generalizes the standard methods of solving rational expectations models to the case of time-varying nonstochastic parameters, recurring in a finite cycle. Such a specification occurs in a simple stylized New Keynesian model of the euro area after a joint introduction of (i) rotation in the ECB Governing Council (as constituted by the Treaty of Nice) and (ii) home bias in the interest rate decisions preferred by its members. Secondly, we apply the method of Christiano (2002) to solve the model with heterogenous information sets. This is justified if we argue that the information set of domestic economic agents in a currency union is home-biased (i.e. foreign shocks enter only with a lag). Both methods of solution are illustrated with simulation results.
Year
Volume
1
Issue
3
Pages
211-241
Physical description
Dates
received
2009-07-07
accepted
2009-10-18
Contributors
  • Warsaw School of Economics and Ministry of Finance in Poland
References
Document Type
Publication order reference
Identifiers
YADDA identifier
bwmeta1.element.desklight-75983e84-7c73-4fb5-bcfb-7d0d6dc9bc15
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