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Asymmetries in Transatlantic Monetary Policy‐making: Does the ECB Follow the Fed?

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  • ANSGAR BELKE
  • DANIEL GROS

Abstract

The belief that the European Central Bank (ECB) follows the US Federal Reserve (the Fed) in setting its policy is so entrenched with market participants and commentators that the search for empirical support would seem to be a trivial task. However, this is not the case. We find that the ECB is indeed often influenced by the Fed, but the reverse is true at least as often if one considers longer sample periods. There is empirically little support for the proposition that there has for a long time been a systematic asymmetric leader‐follower relationship between the ECB and the Fed. Only after September 2001 is there more evidence of such an asymmetry. There is a clear‐cut structural break between the period pre‐economic and monetary union (EMU) and EMU itself in terms of the relationship between short‐term interest rates on both sides of the Atlantic.

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  • Ansgar Belke & Daniel Gros, 2005. "Asymmetries in Transatlantic Monetary Policy‐making: Does the ECB Follow the Fed?," Journal of Common Market Studies, Wiley Blackwell, vol. 43(5), pages 921-946, December.
    • Handle: RePEc:bla:jcmkts:v:43:y:2005:i:5:p:921-946
    DOI: 10.1111/j.1468-5965.2005.00602.x
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    1. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
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    1. Beckmann, Joscha & Belke, Ansgar & Dreger, Christian, 2017. "The relevance of international spillovers and asymmetric effects in the Taylor rule," The Quarterly Review of Economics and Finance, Elsevier, vol. 64(C), pages 162-170.
    2. Ciner, Cetin, 2011. "Eurocurrency interest rate linkages: A frequency domain analysis," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 498-505, October.
    3. Colin Gray, 2013. "Responding to a Monetary Superpower: Investigating the Behavioral Spillovers of U.S. Monetary Policy," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 41(2), pages 173-184, June.
    4. Ansgar Belke & Thorsten Polleit, 2007. "How the ECB and the US Fed set interest rates," Applied Economics, Taylor & Francis Journals, vol. 39(17), pages 2197-2209.
    5. Rangan Gupta & Charl Jooste, 2018. "Unconventional monetary policy shocks in OECD countries: how important is the extent of policy uncertainty?," International Economics and Economic Policy, Springer, vol. 15(3), pages 683-703, July.
    6. repec:zbw:rwirep:0477 is not listed on IDEAS
    7. Belke, Ansgar, 2017. "Central bank communication: Managing expectations through the monetary dialogue," Ruhr Economic Papers 692, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    8. Jung, Alexander & Uhlig, Harald, 2019. "Monetary policy shocks and the health of banks," Working Paper Series 2303, European Central Bank.
    9. Roy, Saktinil & Kemme, David M., 2020. "The run-up to the global financial crisis: A longer historical view of financial liberalization, capital inflows, and asset bubbles," International Review of Financial Analysis, Elsevier, vol. 69(C).
    10. Mariam Camarero & Javier Ordóñez & Cecilio Tamarit, 2009. "External Macroeconomic Factors and the Link between Short‐ and Long‐Run European Interest Rates: A Note," Southern Economic Journal, John Wiley & Sons, vol. 75(4), pages 1212-1219, April.
    11. Ansgar Belke, 2014. "Monetary Dialogue 2009-2014 – Looking Backward, Looking Forward," Ruhr Economic Papers 0477, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    12. Michele Ca’ Zorzi & Luca Dedola & Georgios Georgiadis & Marek Jarocinski & Livio Stracca & Georg Strasser, 2023. "Making Waves: Monetary Policy and Its Asymmetric Transmission in a Globalized World," International Journal of Central Banking, International Journal of Central Banking, vol. 19(2), pages 95-144, June.
    13. Raputsoane, Leroi, 2018. "Monetary policy coordination leader followership," MPRA Paper 85684, University Library of Munich, Germany.
    14. Martin Mandler, 2010. "Explaining ECB and FED interest rate correlation: Economic interdependence and optimal monetary policy," MAGKS Papers on Economics 201025, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    15. Christian Dreger & Malte Rieth & David Pothier, 2015. "Is Globalization Reducing the Ability of Central Banks to Control Inflation? In-Depth Analysis," DIW Berlin: Politikberatung kompakt, DIW Berlin, German Institute for Economic Research, volume 106, number pbk106, January.
    16. Ansgar Belke & Florian Verheyen, 2014. "The Low-Interest-Rate Environment, Global Liquidity Spillovers and Challenges for Monetary Policy Ahead," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 56(2), pages 313-334, June.
    17. Nikolaou, Kleopatra & Modugno, Michele, 2009. "The forecasting power of internal yield curve linkages," Working Paper Series 1044, European Central Bank.
    18. Metin Tetik & Görkem Kara, 2020. "FED ve TCMB Politika Kararları Arasındaki Stratejik Etkileşimin Testi: Toda-Yamamoto Yaklaşımı," EKOIST Journal of Econometrics and Statistics, Istanbul University, Faculty of Economics, vol. 0(32), pages 35-47, June.
    19. Ca' Zorzi, Michele & Dedola, Luca & Georgiadis, Georgios & Jarociński, Marek & Stracca, Livio & Strasser, Georg, 2020. "Monetary policy and its transmission in a globalised world," Working Paper Series 2407, European Central Bank.
    20. Teti̇k, Metin, 2020. "Testing of leader-follower interaction between fed and emerging countries’ central banks," The Journal of Economic Asymmetries, Elsevier, vol. 22(C).
    21. Belke, Ansgar H. & Gros, Daniel, 2007. "Instability of the Eurozone? On Monetary Policy, House Prices and Labor Market Reforms," IZA Discussion Papers 2547, Institute of Labor Economics (IZA).
    22. Belke, Ansgar & Beckmann, Joscha & Dreger, Christian, 2014. "Does the foreign interest rate matter for monetary policy? Evidence from nonlinear Taylor rules," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100450, Verein für Socialpolitik / German Economic Association.
    23. Cleomar Gomes da silva & Flavio V. Vieira, 2016. "Monetary policy decision making: the role of ideology, institutions and central bank independence," Economics Bulletin, AccessEcon, vol. 36(4), pages 2051-2062.
    24. Çelik, Sadullah & Deniz, Pınar, 2009. "Does Fed Funds Target Interest Rate Lead Bank of England’s Bank Rate and European Central Bank’s Key Interest Rate?," MPRA Paper 14750, University Library of Munich, Germany.

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