Differences in Interest Rate Policy at the ECB and the Fed: An Investigation with a Medium-Scale DSGE Model.

Using two estimated models for the euro area and the United States, this paper investigates whether the observed difference in the amplitude of the interest rate cycle since 1999 in both areas is due to differences in the estimated monetary policy reaction function, differences in the structure of the economy or differences in the size and nature of the shocks hitting both economies. The paper concludes that differences in the type, size and persistence of shocks in both areas can largely explain the different interest rate setting.Policy activism ; DSGE model ; Interest rates ; Macroeconomic shocks.

Second-Order Belief Hidden Markov Models

Hidden Markov Models (HMMs) are learning methods for pattern recognition. The probabilistic HMMs have been one of the most used techniques based on the Bayesian model. First-order probabilistic HMMs were adapted to the theory of belief functions such that Bayesian probabilities were replaced with mass functions. In this paper, we present a second-order Hidden Markov Model using belief functions. Previous works in belief HMMs have been focused on the first-order HMMs. We extend them to the second-order model