At this level we need a model with two components and one constraint. The constraint is the ability to take into account the nonlinearities in the ináation and the term structure dynamics, a usual empirical fact in past studies and a possible outcome of the creation of the ECB. The Örst component is intended to identify the long-term perception of monetary policy by private agents. Here we use the long-term ináation target perceived by the public from the observed behaviour of the central bank and the Fisher relationship to link this perception to the corresponding level of nominal interest rate. The second component describes the relationship between the.
