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Is The View From The Eurotower Purely European? – National Divergence And Ecb Interest Rate Policy

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  • Friedrich Heinemann
  • Felix P. Huefner

Abstract

The official view on ECB monetary policy claims that decisions are based on euro zone data and that diverging regional developments are disregarded. To test empirically whether regional developments have an impact on ECB decisions we develop a generalised monetary policy reaction function which allows for an influence of regional divergence. Reaction function estimations and a probit model of interest rate decisions for the first years of the euro area offer some first support for an impact of regional divergence. The results clarify that ignoring a potential national perspective may lead to biased estimates for the ECB reaction function.

Suggested Citation

  • 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, September.
    • Handle: RePEc:bla:scotjp:v:51:y:2004:i:4:p:544-558
    DOI: 10.1111/j.0036-9292.2004.00320.x
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    More about this item

    JEL classification:

    • 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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