Are the European Central Bank and Bank of England Macroeconomic Models Consistent with the New Consensus in Macroeconomics?

The focus of this paper is on the extent to which the macroeconomic models developed by the European Central Bank (ECB) and the Bank of England (BoE) are consistent with the 'New Consensus Macroeconomics' (NCM for short). The macroeconometric models are important in two respects. First, they are used as a key element in the forecasting of macroeconomic variables, notably inflation, output and employment, which then help to inform the decisions made by the respective Committees that are responsible for reaching relevant decisions on interest rates. Second, they should reflect the general theoretical stance of the economic advisers and policy makers of the Central Banks, which informs their general outlook on the economy. We examine the theoretical aspects of both the NCM model and those of the other two models along with the policy implications and monetary practice of the two central banks. We closely consider the consistency between the two macroeconomic models and the NCM.