As to structural models, a key aspect is the definition of the equilibrium from which the economy starts and to which it tends to return after the shock. The equilibrium path of  1  See Angeloni, Kashyap and Mojon (2003). 2  For instance, one project at the Bundesbank currently explores the price setting behaviour in Germany based on survey data.
BIS Review 61/2004  1  inflation is then implied by the model structure. For instance, it may be given by a credible inflation target set by the central bank. The response pattern of inflation to shocks can be traced back in particular to the assumptions about price setting behaviour.