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How has European Monetary Policy Changed since the creation of the ECB? Estimation of Taylor Rule for the EMU (1991-2005)


  • María Jesús Arroyo
  • Román Mínguez
  • Jorge Uxó


This paper aims to use a Taylor Rule to characterise the monetary policy applied by the ECB and to test whether there are significant differences compared to the monetary policy applied in the previous years by the central banks of the 12 countries currently forming part of the EMU. We see that the Taylor rule estimated to characterise the 1991-1998 period does not correctly reflect the behaviour of the ECB and a Chow test confirms the existence of a structural change from that date on. This change supposes a reduction in the neutral real interest rate and a change in the rule’s coefficients, with an increase in the output gap coefficient and an important decrease in the response to inflation deviations. Another result derived from our estimates is that interest rates are associated to a high level of inertia. However, the introduction of other variables into the rule, such as the Federal Reserve interest rate, variation in the real euro-dollar exchange rate or deviation of the M3 growth rate from the reference value established by the ECB, is of little significance when explaining interest rate variations.

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  • María Jesús Arroyo & Román Mínguez & Jorge Uxó, 2006. "How has European Monetary Policy Changed since the creation of the ECB? Estimation of Taylor Rule for the EMU (1991-2005)," Working Papers 03/06, Instituto Universitario de Análisis Económico y Social.
  • Handle: RePEc:uae:wpaper:0306

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    References listed on IDEAS

    1. Jean Pisani-Ferry & André Sapir & Guntram B. Wolff, . "An evaluation of IMF surveillance of the euro area," Blueprints, Bruegel, number 629, November.
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    4. Gian M Milesi-Ferretti & Olivier J Blanchard, 2009. "Global Imbalances; In Midstream?," IMF Staff Position Notes 2009/29, International Monetary Fund.
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    6. Jean Pisani-Ferry & Silvia Merler, 2012. "The simple macroeconomics of North and South in EMU," Working Papers 740, Bruegel.
    7. Reinhart, Karmen & Rogoff, Kenneth, 2009. ""This time is different": panorama of eight centuries of financial crises," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 77-114, March.
    8. Raghuram G. Rajan, 2010. "Fault Lines: How Hidden Fractures Still Threaten the World Economy," Economics Books, Princeton University Press, edition 1, number 9111, June.
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    monetary policy; EMU; interest rate;


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