8. Concluding Remarks
|
Variable |
x |
x* |
∏Η |
* |
∆t |
ʌ |
ʌ i* |
|
x |
1.0000 |
0.0566 |
-0.4303 |
-0.0157 |
-0.1783 |
-0.7667 |
-0.0062 |
|
x* |
0.0566 |
1.0000 |
0.0413 |
-0.8503 |
-0.2025 |
0.0165 |
-0.8834 |
|
πH |
-0.4303 |
0.0413 |
1.0000 |
-0.0426 |
-0.1487 |
0.8980 |
-0.0501 |
|
πF |
-0.0157 |
-0.8503 |
-0.0426 |
1.0000 |
0.3056 |
-0.0308 |
0.9894 |
|
∆t |
-0.1783 |
-0.2025 |
-0.1487 |
0.3056 |
1.0000 |
0.0099 |
0.2668 |
|
ʌ i |
-0.7667 |
0.0165 |
0.8980 |
-0.0308 |
0.0099 |
1.0000 |
-0.0407 |
|
ʌ i*____________ |
-0.0062 |
-0.8834 |
-0.0501 |
0.9894 |
0.2668 |
-0.0407 |
1.0000 |
|
Table 2: Correlation of simulated variables | |||||||
|
Variable |
t - 1 |
t - 2 |
t-3 |
t-4 |
t-5 | ||
|
x |
0.7948 |
0.6069 |
0.4625 |
0.3513 |
0.2574 | ||
|
x* |
0.7944 |
0.6279 |
0.5004 |
0.3857 |
0.2957 | ||
|
πH |
0.8091 |
0.6536 |
0.5277 |
0.4337 |
0.3558 | ||
|
πF |
0.7941 |
0.6264 |
0.4935 |
0.3789 |
0.2852 | ||
|
∆t |
0.0887 |
0.0285 |
-0.0018 |
0.0046 |
0.0046 | ||
|
ʌ |
0.8173 |
0.6288 |
0.4808 |
0.3745 |
0.2857 | ||
|
ʌ i*____________ |
0.8008 |
0.6337 |
0.4981 |
0.3878 |
0.2952 | ||
Table 3: Autocorrelation of simulated variables
As one can see from Table 1, the explanation why for almost any impulse the deviation of x is notably
higher than of x* may be found in the differing interest-rate rules for the ECB (60) and the Fed (61). The
positive and fixed sensitivity of the Fed to the current US output gap may ceteris paribus absorb part
of the impulses transmitted through the system of equations (63). This additional channel constitutes
a dampening effect to any exogenous disturbance, which does not exist for the EU by assumption. In
consequence, the simulated variance of the domestic output gap σ2 is almost three times as high as the
simulated variance of the foreign output gap σ2* :
~2
σx*
26.946731
9.639881
2.795339.
On the contrary, the simulated variance of the foreign PPI inflation rate σ2* is almost three times as
F
high as the simulated variance of the domestic PPI inflation rate σ∏H :
πH
6.790766
2.364727
2.871691.
This means that if the ECB implemented its monetary policy by following the interest-rate rule (60),
sustaining price stability, which is its primary objective according to its statute, would be better attainable
than if, e.g., it were using an interest-rate rule as proposed for the Fed (61) instead. Nonetheless, this
advantage can only be reached at the expense of relatively high fluctuations in the EU output gap, which
is a trade-off commonly observed in literature on monetary policy.
Notice that again the above results have been derived for a calibrated version of the two-country DSGE
model only so that they may not necessarily be universally applicable.
8. Concluding Remarks
The main results of the present article have already been stated in the introductory Section 1 such that
there is no need to repeat them once more at this point. However, one might be interested in possible
extensions and applications of the present model to be dealt with by future research.
In line with Obstfeld/Rogoff (2001, pp. 37-38) and as mentioned in Section 4, one could enrich this
model, e.g., by introducing government spending (shocks). Or one could try and implement optimal mon-
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