In this paper, we propose a simple econometric framework to disentangle the respective
roles of monetary policy inertia and persistent shocks in interest rate rules. The
authers exploit the restrictions of a DSGE model that is confronted with a monetary
SVAR. The authors show that, provided enough informative variables are included in
the formal test, the data favor a monetary policy representation with modest inertia
and highly serially correlated monetary shocks. To the contrary, when the procedure
is based solely on the dynamic behavior of the nominal interest rate, no clear-cut
conclusion can be reached about the correct representation of monetary policy.