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@article{ Monteforte2008, title = {The economic consequences of Euro-area macro-modelling shortcuts}, author = {Monteforte, Libero and Siviero, Stefano}, journal = {Applied Economics}, number = {19}, pages = {2399-2415}, volume = {42}, year = {2008}, doi = {https://doi.org/10.1080/00036840701858075}, urn = {https://nbn-resolving.org/urn:nbn:de:0168-ssoar-242456}, abstract = {Should euro-area economies be modelled in an aggregate (area-wide) fashion or in a disaggregate (multi-country) one? This paper tackles that question from both a statistical and an economic viewpoint. From a statistical viewpoint, aggregation bias criteria are found to signal that the degree of structural heterogeneity among euro-area economies is such that the loss of information entailed by an aggregate modelling approach may be far from trifling. From an economic viewpoint, we investigate the following issue: Are those statistically detectable heterogeneities of any practical relevance when it comes to supporting monetary policy decision-making? To provide an answer to this question, we compute simple optimal monetary policy reaction functions on the basis of either an aggregate model or a disaggregate one, and compare the associated welfare losses. The results suggest that the welfare under-performance of an area-wide-model-based rule is not only non negligible, but also robust with respect to a number of sensitivity analyses.}, keywords = {Geldpolitik; aggregation; monetary policy; Aggregation}}