Too small to be independent? On the influence of ECB monetary policy on interest rates of the EEA countries

Lukasz Goczek and Karol J. Partyka

Economic Modelling, 2019, vol. 78, issue C, 180-191

Abstract: Monetary policy independence is regarded as the central argument in favour of floating exchange rates and monetary integration. We evaluate the actual independence of non-euro members of the European Economic Area by using heterogeneous panel cointegration methods that allow cross-dependency. We show that domestic interest rates follow the euro interest rates. These spillovers imply a low monetary independence despite the insulation given by floating exchange rate regimes and inflation-targeting frameworks. We therefore find significant spillover effects of the European Central Bank policy and argue that the costs of monetary integration in Europe may be lower than expected.

Keywords: Panel cointegration; Monetary integration; Monetary policy independence; Trilemma; Dilemma; Exchange-rate regime; Global financial cycle (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 F41 F42 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:78:y:2019:i:c:p:180-191

DOI: 10.1016/j.econmod.2018.09.019

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