IS THE VIEW FROM THE EUROTOWER PURELY EUROPEAN? – NATIONAL DIVERGENCE AND ECB INTEREST RATE POLICY

Friedrich Heinemann · Felix Hüfner

90 citations0/0 files storedScottish Journal of Political Economy

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Monetary Policy and Economic Impact Global Financial Crisis and Policies European Monetary and Fiscal Policies

Abstract

Abstract The official view on ECB monetary policy claims that decisions are based on euro zone data and that diverging regional developments are disregarded. To test empirically whether regional developments have an impact on ECB decisions we develop a generalised monetary policy reaction function which allows for an influence of regional divergence. Reaction function estimations and a probit model of interest rate decisions for the first years of the euro area offer some first support for an impact of regional divergence. The results clarify that ignoring a potential national perspective may lead to biased estimates for the ECB reaction function.

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References

1993Discretion versus policy rules in practice 1998Monetary policy rules in practice 2000Economic voting: an introduction 1997Monetary Policy Rules in Practice: Some International Evidence 2002Do asymmetries matter for European monetary policy?2001An Empirical Comparison of Bundesbank and ECB Monetary Policy Rules

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