Type
Article
Titre
A two-pillar DSGE monetary policy model for the euro area
Dans
Economic Modelling
Auteur(s)
BARTHÉLEMY Jean - Banque de France (Auteur)
MARX Magali - Banque de France (Auteur)
Volume
28
Numéro
3
Pages
1303 - 1316 p.
ISSN
02649993
Mots clés
Monetary policy, Monetary Aggregates, Monetary Policy Rules, ECB
Résumé
EN
The current financial crisis has revived the interest for monitoring both monetary and credit developments. Over the past two decades, consistent with the adoption of inflation targeting strategies by a growing number of central banks and the development of New Keynesian models for which monetary aggregates are largely irrelevant, money and credit have been progressively neglected in the conduct of monetary policy. A striking exception has been the Eurosystem, which has implemented a strategy known as the “two-pillar monetary policy strategy” giving a prominent role for money. In this paper, we develop a small optimizing model based on Ireland (2004), estimated on euro area data and featuring this two-pillar strategy. We evaluate an ECB-style cross-checking policy rule in a DSGE model with real balance effects of money. We find some evidence that indeed money plays a non-trivial role in explaining the euro area business cycle. This provides a rationale for the central bank to factor in monetary developments but also raises some issues regarding the reliability of M3 as an appropriate monetary indicator. We find some evidence that the ECB has systematically reacted to a filtered measure of money growth but weak evidence it has reacted more aggressively during excess money growth periods.

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