Research Discussion Papers, Bank of Finland
No 11/2009:
Evaluating the stresses from ECB monetary policy in the euro area
Jim Lee and Patrick M Crowley ()
Abstract: This paper investigates the extent to which euro area
monetary policy has responded to evolving economic conditions in individual
member states as opposed to the euro area as a whole. Based on a
forward-looking Taylor rule-type policy reaction function, we conduct
counterfactual exercises that compare the monetary policy behaviour of the
ECB under alternative hypothetical scenarios: (1) the euro member states
make individual policy decisions, and (2) the ECB responds to the economic
conditions of individual members. Stress measures are then constructed to
evaluate the degree of divergence of member state economies under these two
hypothetical scenarios. The results we obtain reflect the extent of
heterogeneity among the national economies in the monetary union,
indicating that euro area policy rates have been particularly close to the
‘counterfactual’ interest rates of the largest euro members and countries
with similar economic conditions, namely Germany, Austria, Belgium and
France.
Keywords: European Central Bank; monetary policy reaction; Taylor rule; counterfactual analysis; (follow links to similar papers)
JEL-Codes: C53; E52; (follow links to similar papers)
35 pages, April 7, 2009
Before downloading any of the electronic versions below
you should read our statement on
copyright.
Download GhostScript
for viewing Postscript files and the
Acrobat Reader for viewing and printing pdf files.
Full text versions of the paper:
0911netti.pdf 
Download Statistics
Questions (including download problems) about the papers in this series should be directed to Minna Nyman ()
Report other problems with accessing this service to Sune Karlsson ()
or Helena Lundin ().
Programing by
Design by Joachim Ekebom
