Advanced Search
MyIDEAS: Login

Using Taylor Rules to Understand European Central Bank Monetary Policy

Contents:

Author Info

  • Stephan Sauer
  • Jan-Egbert Sturm

Abstract

Over the last decade, the simple instrument policy rule developed by Taylor has become a popular tool for evaluating the monetary policy of central banks. As an extensive empirical analysis of the European Central Bank's (ECB) past behaviour still seems to be in its infancy, we estimate several instrument policy reaction functions for the ECB to shed some light on actual monetary policy in the euro area under the presidency of Wim Duisenberg and answer questions like whether the ECB has actually followed a stabilizing or a destabilizing rule so far. Looking at contemporaneous Taylor rules, the evidence presented suggests that the ECB is accommodating changes in inflation and hence follows a destabilizing policy. However, this impression seems to be largely due to the lack of a forward-looking perspective in such specifications. Either assuming rational expectations and using a forward-looking specification, or using expectations as derived from surveys result in Taylor rules that do imply a stabilizing role of the ECB. The use of real-time industrial production data does not seem to play such a significant role as in the case of the United States. Copyright Verein für Socialpolitik and Blackwell Publishing Ltd. 2007.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0475.2007.00413.x
File Function: link to full text
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Verein für Socialpolitik in its journal German Economic Review.

Volume (Year): 8 (2007)
Issue (Month): (08)
Pages: 375-398

as in new window
Handle: RePEc:bla:germec:v:8:y:2007:i::p:375-398

Contact details of provider:
Email:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=1465-6485
More information through EDIRC

Order Information:
Web: http://www.blackwellpublishing.com/subs.asp?ref=1465-6485

Related research

Keywords:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Laurence Ball, 1997. "Efficient rules for monetary policy," Reserve Bank of New Zealand Discussion Paper Series G97/3, Reserve Bank of New Zealand.
  2. Svensson, Lars E O, 1996. "Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets," CEPR Discussion Papers 1511, C.E.P.R. Discussion Papers.
  3. Phillips, P C B, 1988. "Reflections on Econometric Methodology," The Economic Record, The Economic Society of Australia, vol. 64(187), pages 344-59, December.
  4. Richard H. Clarida & Mark Gertler, 1997. "How the Bundesbank Conducts Monetary Policy," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 363-412 National Bureau of Economic Research, Inc.
  5. Sharon Kozicki, 1999. "How useful are Taylor rules for monetary policy?," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 5-33.
  6. Coenen, Günter & Levin, Andrew T. & Wieland, Volker, 2001. "Data uncertainty and the role of money as an information variable for monetary policy," Working Paper Series 0084, European Central Bank.
  7. Lars E. O. Svensson, 1997. "Inflation Targeting: Some Extensions," NBER Working Papers 5962, National Bureau of Economic Research, Inc.
  8. Hayo, Bernd & Volker Clausen, 2003. "Monetary Policy in the Euro Area - Lessons from the First Years," Royal Economic Society Annual Conference 2003 103, Royal Economic Society.
  9. Gert Peersman & Frank Smets, 1999. "Uncertainty and the Taylor rule in a simple model of the Euro-area economy," Proceedings, Federal Reserve Bank of San Francisco.
  10. Fourçans, André & Vranceanu, Radu, 2002. "ECB Monetary Policy Rule: Some Theory and Empirical Evidence," ESSEC Working Papers DR 02008, ESSEC Research Center, ESSEC Business School.
  11. Pérez Quirós, Gabriel & Sicilia, Jorge, 2002. "Is the European Central Bank (and the United States Federal Reserve) predictable?," Working Paper Series 0192, European Central Bank.
  12. Jeffery D. Amato & Thomas Laubach, 1999. "The value of interest rate smoothing : how the private sector helps the Federal Reserve," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 47-64.
  13. Issing,Otmar & Gaspar,Vitor & Angeloni,Ignazio & Tristani,Oreste, 2001. "Monetary Policy in the Euro Area," Cambridge Books, Cambridge University Press, number 9780521788885, October.
  14. Paolo Surico, 2003. "Asymmetric Reaction Functions for the Euro Area," Oxford Review of Economic Policy, Oxford University Press, vol. 19(1), pages 44-57.
  15. Wolfgang Nierhaus & Jan-Egbert Sturm, 2003. "Methoden der Konjunkturprognose," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 56(04), pages 7-23, 02.
  16. G. Goldrian & J.D. Lindbauer & G. Nerb & B. Ulrich, 2001. "Evaluation and development of confidence indicators based on harmonised business and consumer surveys (Study contracted to IFO, Munich)," European Economy - Economic Papers 151, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  17. Ullrich, Katrin, 2003. "A Comparison Between the Fed and the ECB: Taylor Rules," ZEW Discussion Papers 03-19, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  18. Banerjee, Anindya & Dolado, Juan J. & Galbraith, John W. & Hendry, David, 1993. "Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data," OUP Catalogue, Oxford University Press, number 9780198288107.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:bla:germec:v:8:y:2007:i::p:375-398. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.