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A comprehensive model on the Euro overnight rate

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Author Info
Barbara Roffia () (European Central Bank, Postfach 160319, 60311 Frankfurt am Main, Germany.)
Dieter Gerdesmeier () (European Central Bank, Postfach 160319, 60311 Frankfurt am Main, Germany.)
Abstract

This paper contains a set of estimates of reaction functions for the euro area based on a monthly data set starting in 1985. The main aim is to assess the performance of Taylor rules and to evaluate whether alternative specifications based, inter alia, on the inclusion of additional variables not contained in the original specification proposed by Taylor or the use of different measures of the output gap and the inflation term, can better track the interest rate setting in the euro area. An interesting result is that monetary developments (in the form of a money growth gap indicator derived as the deviation of M3 growth from its estimated reference value) enter significantly as an additional variable in a Taylor-like policy rule specification for the euro area. JEL Classification: E58; F41.

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Paper provided by European Central Bank in its series Working Paper Series with number 206.

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Length: 60 pages
Date of creation: Jan 2003
Date of revision:
Handle: RePEc:ecb:ecbwps:20030206

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Related research
Keywords: Taylor rules; reaction functions; monetary policy; euro area.;

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  1. Efrem Castelnuovo, 2003. "Taylor Rules and Interest Rate Smoothing in the US and EMU," Macroeconomics 0303002, EconWPA. [Downloadable!]
  2. Bernd Hayo & Boris Hofmann, 2004. "Comparing Monetary Policy Reaction Functions: ECB versus Bundesbank," Money Macro and Finance (MMF) Research Group Conference 2004 3, Money Macro and Finance Research Group. [Downloadable!]
    Other versions:
  3. Maria ELEFTHERIOU, 2003. "On the Robustness of the "Taylor Rule" in the EMU," Economics Working Papers ECO2003/17, European University Institute. [Downloadable!]
  4. Rebeca I Muñoz Torres, 2005. "Monetary Policy Rules and Inflation Targets in Emerging Economies Evidence for Mexico and Israel," Money Macro and Finance (MMF) Research Group Conference 2005 3, Money Macro and Finance Research Group. [Downloadable!]
  5. Küster, Keith & Wieland, Volker, 2005. "Insurance Policies for Monetary Policy in the Euro Area," CEPR Discussion Papers 4956, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  6. Paolo Surico, 2003. "How does the ECB target inflation?," Macroeconomics 0305005, EconWPA. [Downloadable!]
    Other versions:
  7. Petra Gerlach-Kristen, 2003. "Interest rate reaction functions and the Taylor rule in the Euro area," Working Paper Series 258, European Central Bank. [Downloadable!]
  8. Fourçans, André & Vranceanu, Radu, 2006. "Is the ECB so special? A qualitative and quantitative analysis," ESSEC Working Papers DR 06004, ESSEC Research Center, ESSEC Business School. [Downloadable!]
  9. Kai Carstensen & Roberta Colavecchio, 2004. "Did the Revision of the ECB Monetary Policy Strategy Affect the Reaction Function?," Kiel Working Papers 1221, Kiel Institute for the World Economy. [Downloadable!]
  10. Jesus Crespo Cuaresma & Ernest Gnan & Doris Ritzberger-Gruenwald, 2003. "Searching for the Natural Rate of Interest: A Euro-Area Perspective," Working Papers 84, Oesterreichische Nationalbank (Austrian Central Bank). [Downloadable!]
    Other versions:
  11. Alistair Dieppe & Keith Küster & Peter McAdam, 2004. "Optimal monetary policy rules for the euro area: an analysis using the area wide model," Working Paper Series 360, European Central Bank. [Downloadable!]
    Other versions:
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