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Interest Rate Setting by the ECB: Words and Deeds

Listed author(s):
  • Gerlach, Stefan

This Paper discusses interest rate setting by the ECB between 1999 and 2004. I develop from the Monthly Bulletins quantitative indicators of the Governing Council’s assessment of inflation, economic activity, and M3 growth, and investigate their impact on its interest rate decisions. I also estimate reaction functions with ordered probit techniques, using the Monthly Bulletins to guide the choice of variables for the analysis. The results show that the ECB reacts strongly to economic sentiment indicators as measures of the state of the real economy. Furthermore, I find statistically significant reactions to inflation and M3 growth.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4775.

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Date of creation: Dec 2004
Handle: RePEc:cpr:ceprdp:4775
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  1. Bernd Hayo & Boris Hofmann, 2006. "Comparing monetary policy reaction functions: ECB versus Bundesbank," Empirical Economics, Springer, vol. 31(3), pages 645-662, September.
  2. Davutyan, Nurhan & Parke, William R, 1995. "The Operations of the Bank of England, 1890-1908: A Dynamic Probit Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1099-1112, November.
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  5. 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, 09.
  6. Gerlach, Stefan & Schnabel, Gert, 2000. "The Taylor rule and interest rates in the EMU area," Economics Letters, Elsevier, vol. 67(2), pages 165-171, May.
  7. Gunter Coenen & Volker Wieland, 2000. "A Simple Estimated Euro Area Model With Rational Expectations And Nominal Rigidities," Computing in Economics and Finance 2000 187, Society for Computational Economics.
  8. Coenen, Gunter & Wieland, Volker, 2005. "A small estimated euro area model with rational expectations and nominal rigidities," European Economic Review, Elsevier, vol. 49(5), pages 1081-1104, July.
  9. Peersman, Gert & Smets, Frank, 1999. "The Taylor Rule: A Useful Monetary Policy Benchmark for the Euro Area?," International Finance, Wiley Blackwell, vol. 2(1), pages 85-116, April.
  10. Athanasios Orphanides, 2001. "Monetary Policy Rules Based on Real-Time Data," American Economic Review, American Economic Association, vol. 91(4), pages 964-985, September.
  11. Ullrich, Katrin, 2003. "A Comparison Between the Fed and the ECB: Taylor Rules," ZEW Discussion Papers 03-19, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  12. Frank Smets & Raf Wouters, 2002. "Monetary policy in an estimated stochastic dynamic general equilibrium model of the Euro area," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  13. Fritz Breuss, 2002. "Was ECB's monetary policy optimal?," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 30(3), pages 298-319, September.
  14. Gerlach-Kristen, Petra, 2003. "Interest rate reaction functions and the Taylor rule in the euro area," Working Paper Series 0258, European Central Bank.
  15. Gert Peersman & Frank Smets, 1999. "Uncertainty and the Taylor rule in a simple model of the Euro-area economy," Proceedings, Federal Reserve Bank of San Francisco.
  16. Gerlach-Kristen, Petra, 2003. "Interest rate reaction functions and the Taylor rule in the euro area," Working Paper Series 258, European Central Bank.
  17. Fritz Breuss, 2002. "Was ECB's Monetary Policy Optimal?," WIFO Working Papers 173, WIFO.
  18. Gerdesmeier, Dieter & Roffia, Barbara, 2003. "Empirical estimates of reaction functions for the euro area," Working Paper Series 206, European Central Bank.
  19. Bernd Hayo, 2003. "European monetary policy: Institutional design and policy experience," Intereconomics: Review of European Economic Policy, Springer;German National Library of Economics;Centre for European Policy Studies (CEPS), vol. 38(4), pages 209-218, July.
  20. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, 09.
  21. Eichengreen, Barry & Watson, Mark W & Grossman, Richard S, 1985. "Bank Rate Policy under the Interwar Gold Standard: A Dynamic Probit Model," Economic Journal, Royal Economic Society, vol. 95(379), pages 725-745, September.
  22. Dieter Gerdesmeier & Barbara Roffia, 2004. "Empirical Estimates of Reaction Functions for the Euro Area," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 140(I), pages 37-66, March.
  23. Fagan, Gabriel & Henry, Jérôme & Mestre, Ricardo, 2001. "An area-wide model (AWM) for the euro area," Working Paper Series 0042, European Central Bank.
  24. 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.).
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