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Is the ECB so special? A qualitative and quantitative analysis

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Author Info

  • Fourçans, André

    ()
    (ESSEC Business School)

  • Vranceanu, Radu

    ()
    (ESSEC Business School)

Abstract

This paper analyses the European Central Bank (ECB) monetary policy over the period 1999-2005, both from a qualitative and a quantitative perspective, and compares it with the Federal Reserve Bank. The qualitative approach builds on information conveyed by various speeches of the central bank officers, mainly the President of the ECB, Jean-Claude Trichet. The quantitative analysis provides several estimates of what could have been the ECB and Fed interest rate rules. It also develops a VAR model of both the Euro zone and the US economy so as to analyze dynamic effects of an interest rate shock. Both the qualitative and quantitative analyses point to the difficult task of the ECB, which must build credibility while managing monetary policy under major uncertainty about the structure of the new Euro area. They also suggest that, apart from the ECB’s credibility building, differences between the observed behaviour of the ECB and the Fed over the time period under investigation should be accounted for by differences in the economic outlook of the two areas, rather than in the goals of the central bankers.

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Bibliographic Info

Paper provided by ESSEC Research Center, ESSEC Business School in its series ESSEC Working Papers with number DR 06004.

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Length: 38 pages
Date of creation: Mar 2006
Date of revision:
Handle: RePEc:ebg:essewp:dr-06004

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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 and Fed; Euro area; Monetary policy; Taylor rule; VAR;

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References

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  1. Stefan Gerlach & Lars E.O. Svensson, 2000. "Money and Inflation in the Euro Area: A Case for Monetary Indicators?," NBER Working Papers 8025, National Bureau of Economic Research, Inc.
  2. Fourcans, Andre & Vranceanu, Radu, 2004. "The ECB interest rate rule under the Duisenberg presidency," European Journal of Political Economy, Elsevier, vol. 20(3), pages 579-595, September.
  3. Juan Ayuso & Rafael Repullo, 2000. "A Model of the Open Market Operations of the European Central Bank," Banco de Espa�a Working Papers 0016, Banco de Espa�a.
  4. Ralf M. Fendel & Michael R. Frenkel, 2006. "Five Years Of Single European Monetary Policy In Practice: Is The Ecb Rule-Based?," Contemporary Economic Policy, Western Economic Association International, vol. 24(1), pages 106-115, 01.
  5. Surico, Paolo, 2003. "How does the ECB target inflation?," Working Paper Series 0229, European Central Bank.
  6. Dieter Gerdesmeier & Barbara Roffia, 2004. "Empirical Estimates of Reaction Functions for the Euro Area," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 140(I), pages 37-66, March.
  7. William Kerr & Robert G. King, 1996. "Limits on interest rate rules in the IS model," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 47-75.
  8. Stephan Sauer & Jan-Egbert Sturm, 2003. "Using Taylor Rules to Understand ECB Monetary Policy," CESifo Working Paper Series 1110, CESifo Group Munich.
  9. 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.
  10. International Monetary Fund, 2000. "Monetary and Exchange Rate Policies of the Euro Area," IMF Staff Country Reports 00/46, International Monetary Fund.
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Cited by:
  1. Thanassis Kazanas & Elias Tzavalis, 2011. "Unveiling the monetary policy rule in euro area," Working Papers 130, Bank of Greece.

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