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Interest rate reaction functions for the euro area Evidence from panel data analysis

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  • Ruth, Karsten

Abstract

As of today, estimating interest rate reaction functions for the Euro Area is hampered by the short time span since the conduct of a single monetary policy. In this paper we circumvent the common use of aggregated data before 1999 by estimating interest rate reaction functions based on a panel including actual EMU Member States. We find that exploiting the cross-section dimen- sion of a multi-country panel and accounting for cross-country heterogeneity in advance of the single monetary policy pays off with regard to the estimated reaction functions' ability to describe actual interest rate dynamics. We retrieve a panel reaction function which is demonstrated to be a valuable tool for evaluating episodes of monetary policy since 1999.

Suggested Citation

  • 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.
  • Handle: RePEc:zbw:bubdp1:2299
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    References listed on IDEAS

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    Cited by:

    1. Gerdesmeier, Dieter & Roffia, Barbara & Eleftheriou, Maria, 2006. "Monetary policy rules in the pre-EMU era: Is there a common rule?," Working Paper Series 659, European Central Bank.

    More about this item

    Keywords

    Monetary Policy; Reaction Function; Euro Area; Panel Data;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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