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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/

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Keywords: Pillars; Communication; Transmission; EU newcomers;

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  1. Mojon, Benoît & Kashyap, Anil K. & Angeloni, Ignazio & Terlizzese, Daniele, 2002. "Monetary Transmission in the Euro Area : Where Do We Stand?," Working Paper Series 0114, European Central Bank.
  2. William Poole, 2001. "Central bank transparency: why and how?," Speech 51, Federal Reserve Bank of St. Louis.
  3. Bj�rn-Roger Wilhelmsen & Andrea Zaghini, 2011. "Monetary policy predictability in the euro area: an international comparison," Applied Economics, Taylor & Francis Journals, vol. 43(20), pages 2533-2544.
  4. 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.
  5. Bartosz Mackowiak, 2005. "What does the Bank of Japan do to East Asia?," SFB 649 Discussion Papers SFB649DP2005-059, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  6. Marek Jarocinski, 2004. "Responses to Monetary Policy Shocks in the East and the West of Europe: A Comparison," CASE Network Studies and Analyses 0287, CASE-Center for Social and Economic Research.
  7. 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).
  8. Issing, Otmar, 2001. "The Euro Area and the Single Monetary Policy," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(4), pages 277-88, October.
  9. Orphanides, Athanasios, 2001. "Monetary policy rules, macroeconomic stability and inflation: a view from the trenches," Working Paper Series 0115, European Central Bank.
  10. Goodhart, Charles & Pappa, Evi, 2003. "The transition from national currencies to the euro," Economics Letters, Elsevier, vol. 79(1), pages 83-88, April.
  11. Frederic S. Mishkin, 2004. "Can Central Bank Transparency Go Too Far?," NBER Working Papers 10829, National Bureau of Economic Research, Inc.
  12. Georgy Ganev & Krisztina Molnar & Krzysztof Rybinski & Przemyslaw Wozniak, 2002. "Transmission Mechanism of Monetary Policy in Centraland Eastern Europe," CASE Network Reports 0052, CASE-Center for Social and Economic Research.
  13. Murray Sherwin, 1999. "Inflation targeting: 10 years on," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 62, September.
  14. William Poole, 1999. "Communicating the stance of monetary policy," Speech 73, Federal Reserve Bank of St. Louis.
  15. Luca Benati, 2003. "Evolving Post-World War II U.K. Economic Performance," Computing in Economics and Finance 2003 171, Society for Computational Economics.
  16. Otmar Issing, 2001. "The EURO Area and the single monetary policy," Working Papers 44, Oesterreichische Nationalbank (Austrian Central Bank).
  17. Gulbin Sahinbeyoglu, 2001. "Monetary Transmission Mechanism : A View From A High Inflationary Environment," Discussion Papers 0101, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
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