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The EBC Monetary Policy and its Taylor-type Reaction Function


  • Carstensen Kai
  • Colavecchio Roberta


In this paper we review and estimate Taylor-type reaction functions of the ECB for the first five years of EMU. We find economically plausible specifications indicating that the ECB has attached a large and stabilizing weight to inflation but no significant weight to money growth. This result supports the view that the ECB strives to maintain low inflation, but contradicts the claim made by the ECB that the monetary pillar is of particular importance. In a further step, we analyse the structural stability of the estimated reaction functions. While a recursive analysis indicates some signs of instability in June 2003, which almost coincides with the strategy revision of the ECB announced in May 2003, it is difficult to verify this by means of formal statistical tests. Overall, the estimation and test results indicate that reaction functions with survey indicators as explanatory variables have plausible inflation and output gap weights and show least evidence of instability.

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  • Carstensen Kai & Colavecchio Roberta, 2006. "The EBC Monetary Policy and its Taylor-type Reaction Function," Rivista italiana degli economisti, Società editrice il Mulino, issue 1, pages 51-86.
  • Handle: RePEc:mul:jqat1f:doi:10.1427/23295:y:2006:i:1:p:51-86

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    References listed on IDEAS

    1. Luigi Mittone, 1990. "Il ruolo della qualit� nella domanda di servizi pubblici.Un metodo di analisi empirica," Department of Economics Working Papers 9006, Department of Economics, University of Trento, Italia.
    2. Roberto Tamborini, 1990. "Exchange Rate Changes and Price Determination in Polypolistic Markets," Department of Economics Working Papers 9004, Department of Economics, University of Trento, Italia.
    3. Gianfranco Cerea, 1990. "Le scelte organizzative e localizzative dell'amministrazione postale: un modello intrpretativo," Department of Economics Working Papers 9001, Department of Economics, University of Trento, Italia.
    4. Quirino Paris & Luciano Pilati, 1989. "L'identificazione delle allocazioni dei fattori produttivi con il duale," Department of Economics Working Papers 8906, Department of Economics, University of Trento, Italia.
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    Cited by:

    1. Riccardo Cristadoro & Giuseppe Saporito & Fabrizio Venditti, 2013. "Forecasting inflation and tracking monetary policy in the euro area: does national information help?," Empirical Economics, Springer, vol. 44(3), pages 1065-1086, June.

    More about this item


    Taylor Rule; monetary policy; EMU.;


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