Was ECB's monetary policy optimal?
Overall, the ECB managed monetary policy quite satisfactorily in the first phase of EMU. Nevertheless, this paper asks whether monetary policy could not have been improved. In the last three years, Euroland was confronted with the first external shock. Oil prices increased considerably, leading to an increase of headline inflation of over one percentage point in 2000–01. With a specific Taylor rule one can very well understand, how the ECB sets interest rates, but it turns out that monetary policy based on the estimated Taylor reaction function was rather backward than forward looking. While it reacted with a lag to the actions of the U.S. Fed, it was overly cautious by targeting total HICP inflation. Here it is strongly argued and also demonstrated with model simulations that a monetary policy oriented towards core inflation would have resulted in a much better economic performance. The business cycle downturn could have been mitigated with no additional inflation risks. Copyright International Atlantic Economic Society 2002
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 30 (2002)
Issue (Month): 3 (September)
|Contact details of provider:|| Postal: |
Phone: (404) 965-1555
Fax: (404) 965-1556
Web page: http://springerlink.metapress.com/link.asp?id=112055
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Frankel, Jeffrey A & Rose, Andrew K, 1998.
"The Endogeneity of the Optimum Currency Area Criteria,"
Royal Economic Society, vol. 108(449), pages 1009-25, July.
- Frankel, Jeffrey A & Rose, Andrew K, 1996. "The Endogeneity of the Optimum Currency Area Criteria," CEPR Discussion Papers 1473, C.E.P.R. Discussion Papers.
- Jeffrey A. Frankel & Andrew K. Rose, 1996. "The Endogeneity of the Optimum Currency Area Criteria," NBER Working Papers 5700, National Bureau of Economic Research, Inc.
- Roel M. W. J. Beetsma & Xavier Debrun & Franc Klaassen, 2001.
"Is Fiscal Policy Coordination in EMU Desirable?,"
IMF Working Papers
01/178, International Monetary Fund.
- Roel Beetsma & Xavier Debrun & Frank Klaassen, 2001. "Is Fiscal Policy Coordination in EMU Desirable?," CESifo Working Paper Series 599, CESifo Group Munich.
- Beetsma, Roel & Debrun, Xavier & Klaassen, Franc, 2001. "Is Fiscal Policy Coordination in EMU Desirable?," CEPR Discussion Papers 3035, C.E.P.R. Discussion Papers.
- Roel Beetsma & Xavier Debrun & Franc Klaassen, 2001. "Is Fiscal Policy Coordination in EMU Desirable?," IHEID Working Papers 04-2001, Economics Section, The Graduate Institute of International Studies.
- 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.
- Artis, Michael J & Zhang, Wenda, 1999. "Further Evidence on the International Business Cycle and the ERM: Is There a European Business Cycle?," Oxford Economic Papers, Oxford University Press, vol. 51(1), pages 120-32, January.
- Richard Clarida & Jordi Gali & Mark Gertler, 1998. "Monetary policy rules in practice," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
- Thomas Dalsgaard & Christophe André & Pete Richardson, 2001. "Standard Shocks in the OECD Interlink Model," OECD Economics Department Working Papers 306, OECD Publishing.
- Cristadoro, Riccardo & Forni, Mario & Reichlin, Lucrezia & Veronese, Giovanni, 2001.
"A Core Inflation Index for the Euro Area,"
CEPR Discussion Papers
3097, C.E.P.R. Discussion Papers.
- Benigno, Pierpaolo, 2001.
"Optimal Monetary Policy in a Currency Area,"
CEPR Discussion Papers
2755, C.E.P.R. Discussion Papers.
- David Mayes & Matti Virén, 2000.
"The exchange rate and monetary conditions in the Euro area,"
Review of World Economics (Weltwirtschaftliches Archiv),
Springer, vol. 136(2), pages 199-231, June.
- Mayes, David G. & Viren, Matti, 1998. "The Exchange Rate and Monetary Conditions in the Euro Area," Research Discussion Papers 27/1998, Bank of Finland.
- Peter Isard & Ben Hunt & Douglas Laxton, 2001.
"The Macroeconomic Effects of Higher Oil Prices,"
IMF Working Papers
01/14, International Monetary Fund.
- Ilian Mihov, 2001. "Monetary policy implementation and transmission in the European Monetary Union," Economic Policy, CEPR;CES;MSH, vol. 16(33), pages 369-406, October.
- Jörg Breitung & Bertrand Candelon, 2001. "Is There a Common European Business Cycle?: New Insights from a Frequency Domain Analysis," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 70(3), pages 331-338.
- Lars E. O. Svensson, 2000.
"The First Year of the Eurosystem: Inflation Targeting or Not?,"
American Economic Review,
American Economic Association, vol. 90(2), pages 95-99, May.
- Lars E.O. Svensson, 2000. "The First Year of the Eurosystem: Inflation Targeting or Not?," NBER Working Papers 7598, National Bureau of Economic Research, Inc.
- Svensson, Lars, 2000. "The first Year of the Eurosystem: Inflation Targeting or Not?," Seminar Papers 681, Stockholm University, Institute for International Economic Studies.
- Svensson, Lars E O, 2000. "The First Year Of The Eurosystem: Inflation Targeting Or Not?," CEPR Discussion Papers 2380, C.E.P.R. Discussion Papers.
- Michael Reutter & Hans-Werner Sinn, 2000.
"The Minimum Inflation Rate for Euroland,"
CESifo Working Paper Series
377, CESifo Group Munich.
- Fritz Breuss & Andrea Weber, 1999. "Economic Policy Coordination in the EMU: Implications for the Stability Pact," EUI-RSCAS Working Papers 26, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
- repec:cup:cbooks:9780521783248 is not listed on IDEAS
- Benedict J. Clements & Zenon Kontolemis G. & Joaquim Vieira Ferreira Levy, 2001. "Monetary Policy Under EMU Differences in the Transition Mechanism?," IMF Working Papers 01/102, International Monetary Fund.
- 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.
- Richard Clarida, 2001.
"The Empirics of Monetary Policy Rules in Open Economies,"
NBER Working Papers
8603, National Bureau of Economic Research, Inc.
- Clarida, Richard H, 2001. "The Empirics of Monetary Policy Rules in Open Economies," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(4), pages 315-23, October.
- Andrew Hughes Hallett & Peter Mooslechner, 1999. "Challenges for Economic Policy Coordination within European Monetary Union," Empirica, Springer, vol. 26(3), pages 169-170, September.
- De Grauwe, Paul & Piskorski, Tomasz, 2001. "Union-wide Aggregates versus National Data Based Monetary Policies: Does it Matter for the Eurosystem?," CEPR Discussion Papers 3036, C.E.P.R. Discussion Papers.
- Inklaar, Robert & de Haan, Jakob, 2001. "Is There Really a European Business Cycle? A Comment," Oxford Economic Papers, Oxford University Press, vol. 53(2), pages 215-20, April.
- Canzoneri, Matthew B & Cumby, Robert E & Diba, Behzad T, 2001. "Fiscal Discipline and Exchange Rate Systems," Economic Journal, Royal Economic Society, vol. 111(474), pages 667-90, October.
- Gerlach, Stefan & Smets, Frank, 2000. "MCIs and monetary policy," European Economic Review, Elsevier, vol. 44(9), pages 1677-1700, October.
- John B. Taylor, 2001. "The Role of the Exchange Rate in Monetary-Policy Rules," American Economic Review, American Economic Association, vol. 91(2), pages 263-267, May.
When requesting a correction, please mention this item's handle: RePEc:kap:atlecj:v:30:y:2002:i:3:p:298-319. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.