Is the View from the Eurotower Purely European? National Divergence and ECB Interest Rate Policy
AbstractThe official view on ECB monetary policy claims that monetary decisions are based solely on average data for the euro zone and that diverging regional developments are disregarded. However, experience from other two tier central banks and theoretical considerations suggest that this official view cannot be accepted without empirical testing. A generalised monetary policy reaction function is developed which allows for an influence of regional divergence. The empirical tests are based on reaction function estimations and a probit model of interest rate decisions for the first years of the euro area. The results offer some first weak support for an impact of regional divergence in ECB decision making. The results further clarify that ignoring a potential national perspective may lead to a serious bias in the estimation of ECB reaction functions. The paper concludes that the correct identification of a possible impact of regional divergence is important for the transparency issue. --
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Bibliographic InfoPaper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 02-69.
Date of creation: 2002
Date of revision:
ECB; monetary policy; Taylor rule;
Other versions of this item:
- Friedrich Heinemann & Felix P. Huefner, 2004. "Is The View From The Eurotower Purely European? - National Divergence And Ecb Interest Rate Policy," Scottish Journal of Political Economy, Scottish Economic Society, vol. 51(4), pages 544-558, 09.
- Huefner, Felix P & Friedrich Heinemann, 2003. "Is the View from the Eurotower Purely European? - National Divergence and ECB Interest Rate Policy," Royal Economic Society Annual Conference 2003 110, Royal Economic Society.
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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