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Empirical estimates of reaction functions for the euro area

Author

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  • Gerdesmeier, Dieter
  • Roffia, Barbara

Abstract

This paper contains a set of estimates of reaction functions for the euro area based on a monthly data set starting in 1985. The main aim is to assess the performance of Taylor rules and to evaluate whether alternative specifications based, inter alia, on the inclusionc of additional variables not contained in the original specification proposed by Taylor or the use of different measures of the output gap and the inflation term, can better track the interest rate setting in the euro area. An interesting result is that monetary developments (in the form of a money growth gap indicator derived as the deviation of M# growth from its estimated reference value) enter significantly as an additional variable in a Taylor-like policy rule specification for the euro area. JEL Classification: E58, F41

Suggested Citation

  • Gerdesmeier, Dieter & Roffia, Barbara, 2003. "Empirical estimates of reaction functions for the euro area," Working Paper Series 206, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:2003206
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp206.pdf
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    Keywords

    euro area; monetary policy; reaction functions; Taylor rules;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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