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Country differences in the ECB monetary reaction function

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  • Klose, Jens

Abstract

The European Central Bank (ECB) and the Eurosystem consisted of 18 member countries in the end of 2014. Each of these countries had an own vote in the interest rate decisions of the governing council. Since decisions in this council are mostly reached by unanimous vote, those seem to be harder to reach when individual country variables differ than when they are rather similar. Therefore, in this article this pattern is investigated empirically by adding the standard deviations of fundamental variables to an otherwise standard Taylor reaction function. The results indicate that reaction coefficients on the inflation rate and the output gap are indeed lower when dispersion in the Euro Area countries is higher while monetary policy inertia is more pronounced in times of higher dispersion of the fundamentals.

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  • Klose, Jens, 2016. "Country differences in the ECB monetary reaction function," The Journal of Economic Asymmetries, Elsevier, vol. 14(PB), pages 157-167.
    • Handle: RePEc:eee:joecas:v:14:y:2016:i:pb:p:157-167
    DOI: 10.1016/j.jeca.2016.03.005
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    Cited by:

    1. Ansgar Belke & Jens Klose, 2019. "Forecasting ECB Policy Rates with Different Monetary Policy Rules," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 69(3), pages 238-252, June.
    2. Snyder, Tricia Coxwell & Vale, Sofia, 2022. "House prices and household credit in the Eurozone: A single monetary policy with dissonant transmission mechanisms," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 243-256.
    3. Jakub Bureš, 2017. "Herding Behaviour of Central Banks: Following the Fed and ECB," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 3(1), pages 21-28.

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    More about this item

    Keywords

    European Central Bank; Taylor reaction function; Country dispersion; Standard deviation;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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