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Are Model-Based Inflation Forecasts Used in Monetary Policymaking? A Case Study

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  • Siviero, S.
  • Terlizzese, D.
  • Visco, I.

Abstract

The process through which economic policy is conceived and decided cannot be simply described as the optimisation of a well-defined loss function s ubject to the constraints provided by a model of the economy. Even egnoring the forbidding difficulties of eliciting a stable and explicit loss function from real-life policymakers, the availability of a model reliably describing all the responses of a complex economy to policy interventions is hardly to be expected. Policy will therefore be made against the background of an incomplete model, lacking some policy transmission channels, subject to data revision and possibly to instability in the estimates equations, Requiring continuous reassessment in the light of the available data. Drawing on the experience gained with a macroeconometric model at the Bank of Italy, in this paper we describe the uses to which such a model can be put in the policymaking process.

Suggested Citation

  • Siviero, S. & Terlizzese, D. & Visco, I., 1999. "Are Model-Based Inflation Forecasts Used in Monetary Policymaking? A Case Study," Papers 357, Banca Italia - Servizio di Studi.
    • Handle: RePEc:fth:banita:357
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    Cited by:

    1. Altissimo, Filippo & Gaiotti, Eugenio & Locarno, Alberto, 2005. "Is money informative? Evidence from a large model used for policy analysis," Economic Modelling, Elsevier, vol. 22(2), pages 285-304, March.
    2. den Butter, Frank A. G. & Morgan, Mary S., 1998. "What makes the models-policy interaction successful?," Economic Modelling, Elsevier, vol. 15(3), pages 443-475, July.
    3. Stefano Siviero & Daniele Terlizzese, 2008. "Macroeconomic Forecasting: Debunking a Few Old Wives' Tales," Journal of Business Cycle Measurement and Analysis, OECD Publishing, Centre for International Research on Economic Tendency Surveys, vol. 2007(3), pages 287-316.

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    Keywords

    ECONOMIC POLICY ; ECONOMIC MODELS;

    JEL classification:

    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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