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ECB Monetary Policy Rule: Some Theory and Empirical Evidence

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  • Fourçans, André

    ()
    (ESSEC Business School)

  • Vranceanu, Radu

    ()
    (ESSEC Business School)

Abstract

This paper estimates different monetary policy rules for the ECB with montly data during the period 1999.04-2002.02. The results show that the ECB exhibits a rather conservative behavior: a 1 percentage point increase in the inflation rate above its target brings about a 1,2 percentage point increase in the interest rate. Like the FED, its policy is influenced by real activity. The Bank also smoothes changes in interest rates over time. Despite the announced money growth "reference value", it does not reacts to changes in M3 growth rates.

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Bibliographic Info

Paper provided by ESSEC Research Center, ESSEC Business School in its series ESSEC Working Papers with number DR 02008.

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Length: 14 pages
Date of creation: Aug 2002
Date of revision:
Handle: RePEc:ebg:essewp:dr-02008

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Postal: ESSEC Research Center, BP 105, 95021 Cergy, France
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Web page: http://www.essec.edu/
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Related research

Keywords: ECB; Taylor'srule; monetary policy; inflation;

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References

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  1. Bennett T. McCallum & Edward Nelson, . "Performance of Operational Policy Rules in an Estimated Semi-Classical Structural Model," GSIA Working Papers 1998-22, Carnegie Mellon University, Tepper School of Business.
  2. Jeff Fuhrer & George Moore, 1993. "Inflation persistence," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
  3. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  4. Richard Clarida & Jordi Gali & Mark Gertler, 1997. "Monetary Policy Rules in Practice: Some International Evidence," NBER Working Papers 6254, National Bureau of Economic Research, Inc.
  5. Julio J. Rotemberg & Michael Woodford, 1998. "Interest-Rate Rules in an Estimated Sticky Price Model," NBER Working Papers 6618, National Bureau of Economic Research, Inc.
  6. Laurence M. Ball, 1999. "Policy Rules for Open Economies," NBER Chapters, in: Monetary Policy Rules, pages 127-156 National Bureau of Economic Research, Inc.
  7. Marvin Goodfriend, 1990. "Interest rates and the conduct of monetary policy," Working Paper 90-06, Federal Reserve Bank of Richmond.
  8. Andrew G. Haldane & Nicoletta Batini, 1998. "Forward-Looking Rules for Monetary Policy," NBER Working Papers 6543, National Bureau of Economic Research, Inc.
  9. Jon Faust & John H. Rogers & Jonathan H. Wright, 2001. "An empirical comparison of Bundesbank and ECB monetary policy rules," International Finance Discussion Papers 705, Board of Governors of the Federal Reserve System (U.S.).
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Citations

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Cited by:
  1. Stephan Sauer & Jan-Egbert Sturm, 2007. "Using Taylor Rules to Understand European Central Bank Monetary Policy," German Economic Review, Verein für Socialpolitik, vol. 8, pages 375-398, 08.
  2. VAN POECK, André, 2009. "One money and fifteen needs inflation and output convergence in the European Monetary Union," Working Papers 2009001, University of Antwerp, Faculty of Applied Economics.
  3. Antonio Forte, 2010. "The European Central Bank, the Federal Reserve and the Bank of England: Is the Taylor Rule a useful benchmark for the last decade?," Journal of Economics and Econometrics, Economics and Econometrics Research Institute (EERI), Brussels, vol. 53(2), pages 1-31.
  4. Ansgar Belke & Wim Kösters & Martin Leschke & Thorsten Polleit, 2005. "Back to the rules," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 268/2005, Department of Economics, University of Hohenheim, Germany.

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