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

  • Ruth, Karsten
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    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.

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    File URL: https://www.econstor.eu/bitstream/10419/19500/1/200433dkp.pdf
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    Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2004,33.

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    Date of creation: 2004
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    Handle: RePEc:zbw:bubdp1:2299
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