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Monetary Policy on the Road to EMU: The Dominance of External Constraints on Domestic Objectives

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  • V. Anton Muscatelli
  • Patrizio Tirelli
  • Carmine Trecroci

Abstract

We estimate forward-looking interest-rate reaction functions Exchange Rate Model for four ERM countries. Reputational factors and convergence to the German inflation rate are found to be the main policy goals. We cannot detect evidence that the target zone band was exploited to implement countercyclical policies: Thus, their enthusiastic joining of EMU is not particularly surprising, as the ECB's policies are more likely to take into account their national preferences than the Bundesbank did under the ERM regime.

Suggested Citation

  • V. Anton Muscatelli & Patrizio Tirelli & Carmine Trecroci, 2002. "Monetary Policy on the Road to EMU: The Dominance of External Constraints on Domestic Objectives," Annals of Economics and Statistics, GENES, issue 67-68, pages 389-414.
    • Handle: RePEc:adr:anecst:y:2002:i:67-68:p:389-414
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    1. Carmine Trecroci & Matilde Vassalli, 2010. "Monetary Policy Regime Shifts: New Evidence From Time‐Varying Interest Rate Rules," Economic Inquiry, Western Economic Association International, vol. 48(4), pages 933-950, October.

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