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The federal funds rate and the conduction of the international orchestra

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  • Antonio Ribba

    ()
    (Università di Modena e Reggio Emilia)

Abstract

In the first thirteen years of EMU, monetary policy choices of the European Central Bank (ECB) in setting the short-term interest rate have followed, systematically, monetary policy decisions made by the Federal Reserve System (Fed). For, despite the presence of variable lags with respect to Fed decisions, turning points of European short-term interest rates have been largely anticipated by movements in the federal funds rate. In this paper we show that, in the context of a bivariate cointegrated system, a clear long-run US dominance emerges. Moreover, the structural analysis reveals that a permanent increase in the federal funds rate causes a permanent one-for-one movement in the eonia rate.

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File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I4-P286.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 32 (2012)
Issue (Month): 4 ()
Pages: 2983-2990

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Handle: RePEc:ebl:ecbull:eb-12-00702

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Keywords: Monetary policy; identification; structural cointegrated VARs;

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  1. Chiara Scotti, 2011. "A Bivariate Model of Federal Reserve and ECB Main Policy Rates," International Journal of Central Banking, International Journal of Central Banking, vol. 7(3), pages 37-78, September.
  2. Fisher, Lance A. & Huh, Hyeon-seung, 2007. "Permanent-Transitory Decompositions Under Weak Exogeneity," Econometric Theory, Cambridge University Press, vol. 23(01), pages 183-189, February.
  3. Ribba, Antonio, 1997. "A note on the equivalence of long-run and short-run identifying restrictions in cointegrated systems," Economics Letters, Elsevier, vol. 56(3), pages 273-276, November.
  4. Ribba, Antonio, 2003. "Permanent-transitory decompositions and traditional measures of core inflation," Economics Letters, Elsevier, vol. 81(1), pages 109-116, October.
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Cited by:
  1. Antonio Ribba, 2010. "Sources of Unemployment Fluctuations in the USA and in the Euro Area in the Last Decade," Department of Economics 0627, University of Modena and Reggio E., Faculty of Economics "Marco Biagi".

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