Empirical estimates of reaction functions for the euro area

Dieter Gerdesmeier and Barbara Roffia

No 206, Working Paper Series from European Central Bank

Abstract: This paper contains a set of estimates of reaction functions for the euro area based on a monthly data set starting in 1985. The main aim is to assess the performance of Taylor rules and to evaluate whether alternative specifications based, inter alia, on the inclusionc of additional variables not contained in the original specification proposed by Taylor or the use of different measures of the output gap and the inflation term, can better track the interest rate setting in the euro area. An interesting result is that monetary developments (in the form of a money growth gap indicator derived as the deviation of M# growth from its estimated reference value) enter significantly as an additional variable in a Taylor-like policy rule specification for the euro area. JEL Classification: E58, F41

Keywords: euro area; monetary policy; reaction functions; Taylor rules (search for similar items in EconPapers)
Date: 2003-01
Note: 190719
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2003206

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