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

  • Friedrich Heinemann
  • Felix P. Huefner

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. Copyright (c) Scottish Economic Society 2004.

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Article provided by Scottish Economic Society in its journal Scottish Journal of Political Economy.

Volume (Year): 51 (2004)
Issue (Month): 4 (09)
Pages: 544-558

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Handle: RePEc:bla:scotjp:v:51:y:2004:i:4:p:544-558
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  1. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1997. "Monetary Policy Rules in Practice: Some International Evidence," CEPR Discussion Papers 1750, C.E.P.R. Discussion Papers.
  2. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  3. Ellen E. Meade & D. Nathan Sheets, 2002. "Regional Influences on U.S. Monetary Policy: Some Implications for Europe," CEP Discussion Papers dp0523, Centre for Economic Performance, LSE.
  4. Aksoy, Yunus & De Grauwe, Paul & Dewachter, Hans, 2002. "Do asymmetries matter for European monetary policy?," European Economic Review, Elsevier, vol. 46(3), pages 443-469, March.
  5. Jon Faust & John H. Rogers & Jonathan H. Wright, 2001. "An empirical comparison of Bundesbank and ECB monetary policy rules," International Finance Discussion Papers 705, Board of Governors of the Federal Reserve System (U.S.).
  6. Michael J. Dueker, 1999. "Measuring monetary policy inertia in target Fed funds rate changes," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 3-10.
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