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

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  • Eleftheriou, Maria
  • Gerdesmeier, Dieter
  • Roffia, Barbara

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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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0659.

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Date of creation: Jul 2006
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Handle: RePEc:ecb:ecbwps:20060659

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

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Citations

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Cited by:
  1. Lucjan T. Orlowski, 2008. "Monetary Policy Rules for Convergence to the Euro," CASE Network Studies and Analyses 0358, CASE-Center for Social and Economic Research.
  2. Katrin Assenmacher-Wesche, 2008. "Modeling Monetary Transmission in Switzerland with a Structural Cointegrated VAR Model," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 144(II), pages 197-246, June.
  3. Bernd Hayo & Pierre-Guillaume Méon, 2011. "Behind closed doors: Revealing the ECB’s Decision Rule," MAGKS Papers on Economics 201135, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  4. Pierre Siklos & Martin Bohl, 2009. "Asset Prices as Indicators of Euro Area Monetary Policy: An Empirical Assessment of Their Role in a Taylor Rule," Open Economies Review, Springer, vol. 20(1), pages 39-59, February.
  5. Torój, Andrzej, 2009. "Solving forward-looking models of cross-country adjustment within the euro area," MF Working Papers 1, Ministry of Finance in Poland.
  6. Schnatz, Bernd, 2006. "Is reversion to PPP in euro exchange rates non-linear?," Working Paper Series 0682, European Central Bank.
  7. Romain Duval & Lukas Vogel, 2008. "Oil Price Shocks, Rigidities and the Conduct of Monetary Policy: Some Lessons from a New Keynesian Perspective," OECD Economics Department Working Papers 603, OECD Publishing.
  8. 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.
  9. Ansgar Belke & Yuhua Cui, 2010. "US-Euro Area Monetary Policy Interdependence: New Evidence from Taylor Rule-based VECMs," The World Economy, Wiley Blackwell, vol. 33(5), pages 778-797, 05.
  10. Rafiq, M.S. & Mallick, S.K., 2008. "The effect of monetary policy on output in EMU3: A sign restriction approach," Journal of Macroeconomics, Elsevier, vol. 30(4), pages 1756-1791, December.

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