Optimal regional biases in ECB interest rate setting

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Optimal regional biases in ECB interest rate setting

Author Info

Ivo J.M. Arnold (Nyenrode Business Universiteit)

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Ivo Arnold

Abstract

This paper uses a simple model of optimal monetary policy to consider whether the influence of national output and inflation rates on ECB interest rate setting should equal a country’s weight in the eurozone economy. The findings depend on assumptions regarding interest rate elasticities, exchange rate elasticities, and openness vis-à-vis non-eurozone countries. The major conclusion is that the ECB should respond less to inflation shocks in EMU countries that have strong trading ties with non-eurozone countries. Intuitively, these countries can take care of some of the monetary tightening themselves, through a real appreciation vis-à-vis their non-eurozone trading partners.

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Paper provided by Nyenrode Business Universiteit in its series Nyenrode Research Papers Series with number 05-01.

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Date of creation: 2005
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Handle: RePEc:dgr:nijrep:2005-01

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Article
- Arnold, Ivo J.M., 2006. "Optimal regional biases in ECB interest rate setting," European Journal of Political Economy, Elsevier, vol. 22(2), pages 307-321, June. [Downloadable!] (restricted)

This paper has been announced in the following NEP Reports:

NEP-ALL-2006-05-27 (All new papers)
NEP-CBA-2006-05-27 (Central Banking)
NEP-EEC-2006-05-27 (European Economics)
NEP-FMK-2006-05-27 (Financial Markets)
NEP-MAC-2006-05-27 (Macroeconomics)
NEP-MON-2006-05-27 (Monetary Economics)

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.:

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Other versions:
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Other versions:
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Full references

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(explanations, 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.)

Clemens J.M. Kool, 2005. "What Drives ECB Monetary Policy?," Working Papers 05-03, Utrecht School of Economics. [Downloadable!]

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