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Monetary policy in the Euro area: Lessons from 5 years of ECB and implications for Turkey

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  • Fabio Canova

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  • Carlo Favero

Abstract

We examine monetary policy in the Euro area from both theoretical and empirical perspectives. We discuss what theory tells us the strategy of Central banks should be and contrasts it with the one employed by the ECB. We review accomplishments (and failures) of monetary policy in the Euro area and suggest changes that would increase the correlation between words and actions; streamline the understanding that markets have of the policy process; and anchor expectation formation more strongly. We examine the transmission of monetary policy shocks in the Euro area and in some potential member countries and try to infer the likely effects occurring when Turkey joins the EU first and the Euro area later. Much of the analysis here warns against having too high expectations of the economic gains that membership to the EU and Euro club will produce.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 922.

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Date of creation: Mar 2005
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Handle: RePEc:upf:upfgen:922

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Web page: http://www.econ.upf.edu/

Related research

Keywords: Pillars; Communication; Transmission; EU newcomers;

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  1. Marek Jarocinski, 2006. "Responses to Monetary Policy Shocks in the East and the West of Europe: A Comparison," Working Papers 124, Oesterreichische Nationalbank (Austrian Central Bank).
  2. William Poole, 2001. "Central bank transparency: why and how?," Speech 51, Federal Reserve Bank of St. Louis.
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  10. Luca Benati, 2004. "Evolving post-World War II UK economic performance," Bank of England working papers 232, Bank of England.
  11. Fabio Canova & Matteo Ciccarelli, 2002. "Panel Index Var Models: Specification, Estimation, Testing And Leading Indicators," Working Papers. Serie AD 2002-21, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  12. Murray Sherwin, 1999. "Inflation targeting: 10 years on," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 62, September.
  13. David-Jan Jansen & Jakob de Haan, 2006. "Look who's talking: ECB communication during the first years of EMU," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 11(3), pages 219-228.
  14. William Poole, 1999. "Communicating the stance of monetary policy," Speech 73, Federal Reserve Bank of St. Louis.
  15. Frederic S. Mishkin, 2004. "Can Central Bank Transparency Go Too Far?," NBER Working Papers 10829, National Bureau of Economic Research, Inc.
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