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Monetary Policy Reaction Functions: ECB versus Bundesbank


  • Bernd Hayo

    (Universities of Bonn & Duisburg-Essen)

  • Boris Hofmann

    (ZEI, University of Bonn)


We estimate monetary policy reaction functions for the Bundesbank (1979:4-1998:12) and the European Central Bank (1999:1-2003:7). The Bundesbank regime can be characterised, both before and after German reunification, by an inflation weight of 1.2 and an output weight of 0.4. The estimates for the ECB are 1.2, and 1, respectively. Thus, the ECB, while reacting similarly to expected inflation, puts significantly more weight on stabilising the business cycle than the Bundesbank did.

Suggested Citation

  • Bernd Hayo & Boris Hofmann, 2003. "Monetary Policy Reaction Functions: ECB versus Bundesbank," Macroeconomics 0312007, EconWPA.
  • Handle: RePEc:wpa:wuwpma:0312007 Note: Type of Document -

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    References listed on IDEAS

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    Cited by:

    1. Arnold, Ivo J.M., 2006. "Optimal regional biases in ECB interest rate setting," European Journal of Political Economy, Elsevier, vol. 22(2), pages 307-321, June.
    2. Gruener Hans Peter & Hayo Bernd & Hefeker Carsten, 2009. "Unions, Wage Setting and Monetary Policy Uncertainty," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-25, October.
    3. Pierre Siklos & Martin Bohl, 2009. "Asset Prices as Indicators of Euro Area Monetary Policy: An Empirical Assessment of Their Role in a Taylor Rule," Open Economies Review, Springer, vol. 20(1), pages 39-59, February.
    4. C.J.M. Kool, 2005. "What Drives ECB Monetary Policy?," Working Papers 05-03, Utrecht School of Economics.
    5. Bernd Hayo & Guillaume Méon, 2012. "Why Countries Matter for Monetary Policy Decision-Making in the ESCB," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 10(1), pages 21-26, 04.
    6. Eleftheriou, Maria, 2009. "Monetary policy in Germany: A cointegration analysis on the relevance of interest rate rules," Economic Modelling, Elsevier, vol. 26(5), pages 946-960, September.
    7. Jakas, Vicente, 2011. "Theory and empirics of an affine term structure model applied to European data," MPRA Paper 36029, University Library of Munich, Germany.
    8. Dieter Nautz & Juliane Scharff, 2005. "Inflation and Relative Price Variability in a Low Inflation Country: Empirical Evidence for Germany," German Economic Review, Verein für Socialpolitik, vol. 6(4), pages 507-523, November.
    9. Karsten Ruth, 2007. "Interest rate reaction functions for the euro area," Empirical Economics, Springer, vol. 33(3), pages 541-569, November.
    10. Ruth, Karsten, 2004. "Interest rate reaction functions for the euro area Evidence from panel data analysis," Discussion Paper Series 1: Economic Studies 2004,33, Deutsche Bundesbank.
    11. Bohl, Martin T. & Siklos, Pierre L., 2005. "The Role of Asset Prices in Euro Area Monetary Policy: Specification and Estimation of Policy Rules and Implications for the European Central Bank," Working Paper Series 2005,6, European University Viadrina Frankfurt (Oder), The Postgraduate Research Programme Capital Markets and Finance in the Enlarged Europe.
    12. von Hagen, Jurgen & Hofmann, Boris, 2004. "Macroeconomic implications of low inflation in the euro area," The North American Journal of Economics and Finance, Elsevier, vol. 15(1), pages 5-23, March.

    More about this item


    Taylor rule; monetary policy; ECB; Bundesbank;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit


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