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Monetary policy rules in the pre-EMU era - Is there a common rule?

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Author Info
Maria Eleftheriou () (European University Institute, Economics Department.)
Dieter Gerdesmeier () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
Barbara Roffia () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
Abstract

Despite the great importance and final success of the convergence process that led to the establishment of the European Monetary Union, there is no clear agreement regarding the monetary policy pursued in the member countries during the convergence process. This paper contributes to the literature with an empirical analysis of the period from 1993 to 1998 that encompasses eleven EMU countries. In particular, Taylor-type interest rate rules are estimated with monthly national data to find that, despite certain similarities and exceptions, the rule followed by each country is distinct and differs substantially from the standard Taylor rule. However, for most countries, the parameter estimates reflect the principles proclaimed by the monetary policy authorities and, in addition, it is shown that in most cases the estimated rules reproduce the policy setting quite closely. JEL Classification: E58, F41.

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Paper provided by European Central Bank in its series Working Paper Series with number 659.

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Length: 63 pages
Date of creation: Jul 2006
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Handle: RePEc:ecb:ecbwps:20060659

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Keywords: Taylor rule; ERM; output gap; monetary policy.;

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  1. Ernst Konrad, 2009. "The impact of monetary policy surprises on asset return volatility: the case of Germany," Financial Markets and Portfolio Management, Springer, vol. 23(2), pages 111-135, June. [Downloadable!] (restricted)
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