The project aims at investigating the macroeconomic outlook in the euro area for different aspects. First, the project consists of building a Dynamic Stochastic General Equilibrium medium scale model for the euro area, considering a small open economy setup and introducing energy both as an input in consumption and as an input in production. The model is estimated with Bayesian techniques allowing and testing for indeterminacy since the introduction of the euro until mid-2023, to state if monetary policy was active or passive. Second, the model is used i) to study the recent inflation surge and the related drivers (supply vs demand factors); ii) to estimate an output gap measure and the natural interest rate; iii) to study optimal monetary policy conditional on the estimated shocks. By providing insights into these key aspects, the project seeks to inform policymaking and enhance understanding of the euro area's economic dynamics.