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The British opt-out from the European Monetary Union: empirical evidence from monetary policy rules

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  • Stefano d'Addona

    () (Department of International Studies, University of Rome 3)

  • Ilaria Musumeci

    (Department of International Studies, University of Rome 3)

Abstract

We analyze the current state of monetary integration in Europe, focusing on the United Kingdom’s position regarding the European Monetary Union (EMU). The interest rate decisions of the European Central Bank and the Bank of England are compared through different specifications of the Taylor rule. Comparison of the monetary conduct of these two institutions provides useful guidance in identifying the differences that the British Government claims motivating its refusal to join the EMU. Testing for forward-looking behavior and possible asymmetries in policy responses, we show evidence supporting the opt-out decision taken by the British Government.

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Bibliographic Info

Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 225.

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Length: 38 pages
Date of creation: 26 Mar 2012
Date of revision: 26 Mar 2012
Handle: RePEc:rtv:ceisrp:225

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Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
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Related research

Keywords: Taylor rule; European monetary integration; Regime switching models; Interest rate smoothing;

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  1. Patrick Minford & David Meenagh & Bruce Webb, 2004. "Britain and EMU: Assessing the Costs in Macroeconomic Variability," The World Economy, Wiley Blackwell, vol. 27(3), pages 301-358, 03.
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  12. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
  13. Fagan, Gabriel & Henry, Jerome & Mestre, Ricardo, 2005. "An area-wide model for the euro area," Economic Modelling, Elsevier, vol. 22(1), pages 39-59, January.
  14. Carlo Altavilla & Luigi Landolfo, 2005. "Do central banks act asymmetrically? Empirical evidence from the ECB and the Bank of England," Applied Economics, Taylor and Francis Journals, vol. 37(5), pages 507-519.
  15. Surico, Paolo, 2007. "The Fed's monetary policy rule and U.S. inflation: The case of asymmetric preferences," Journal of Economic Dynamics and Control, Elsevier, vol. 31(1), pages 305-324, January.
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