A Bayesian DSGE Model Comparison of the Taylor Rule and Nominal GDP Targeting

Ibrahima Amadou Diallo (1)

1 CERDI - Centre d'Études et de Recherches sur le Développement International

This paper performs a comparison of the Taylor Rule and Nominal GDP Targeting by estimating a DSGE model with Bayesian techniques. The first part builds a New Keynesian DSGE model with investment adjustment costs, prices and real wages rigidities, a government sector, and imperfect competition, alongside various shocks. The second part estimates and contrasts the models using Bayesian methods on Euro Area data. The results show that the data strongly prefer the Nominal GDP Targeting Rule over the Taylor Rule. We conduct numerous robustness checks to guarantee the solidity of our results. We also provide impulse response functions evaluation of the two Monetary Policy Rules.

Mots clés: Nominal GDP Targeting; Taylor Rule; Bayesian Model Comparison; DSGE Model; Monetary Policy

Domaines: Économie et finance quantitative [q-fin]

Ibrahima Amadou Diallo. A Bayesian DSGE Model Comparison of the Taylor Rule and Nominal GDP Targeting. 2019. ⟨hal-02281971⟩