Assessing Average Inflation Targeting for the Euro Area: An Empirical Exercise

Major central banks in the world, notably the Fed and the ECB, have decided to revised their monetary policy strategies, due to the economic environment of the last decade, characterized by low level of inflation and by the zero lower bound. In this thesis, I estimated a DSGE model for the euro area and I study the effect of the adoption of the average inflation targeting regime based on a welfare loss function. The benefits of the average inflation target arise depending on the design of the monetary policy rule. Specifically, the central bank must answer aggressively to the deviation of the average inflation to its target.