Johann-Wolfgang-Goethe Universität Frankfurt

† The views expressed in this paper are solely the responsibility of the authors and should not be interpreted as reflecting the views of the European Central Bank or the Board of Governors of the Federal Reserve System or any other person associated with the European Central Bank or the Federal Reserve System. Wieland served as a consultant at the European Central Bank while preparing this paper. We are grateful for helpful comments from Patrick Minford, Gabriel Perez-Quiros, Raf Wouters, and participants in the Konstanz Seminar on Monetary Theory and Policy and in a seminar at the European Central Bank. We also appreciate the excellent research assistance of Andres Manzanares from the European Central Bank. Of course, the authors are responsible for any remaining errors. Contents Abstract