Country differences in the ECB monetary reaction function

Jens Klose

The Journal of Economic Asymmetries, 2016, vol. 14, issue PB, 157-167

Abstract: The European Central Bank (ECB) and the Eurosystem consisted of 18 member countries in the end of 2014. Each of these countries had an own vote in the interest rate decisions of the governing council. Since decisions in this council are mostly reached by unanimous vote, those seem to be harder to reach when individual country variables differ than when they are rather similar. Therefore, in this article this pattern is investigated empirically by adding the standard deviations of fundamental variables to an otherwise standard Taylor reaction function. The results indicate that reaction coefficients on the inflation rate and the output gap are indeed lower when dispersion in the Euro Area countries is higher while monetary policy inertia is more pronounced in times of higher dispersion of the fundamentals.

Keywords: European Central Bank; Taylor reaction function; Country dispersion; Standard deviation (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:joecas:v:14:y:2016:i:pb:p:157-167

DOI: 10.1016/j.jeca.2016.03.005

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