 What is on the ECB’s mind? Monetary policy before and after the global financial crisisJonas Gross and Johannes Zahner Journal of Macroeconomics, 2021, vol. 68, issue C Abstract: This paper analyzes the monetary policy of the European Central Bank (ECB) both before and after the outbreak of the global financial crisis in 2008. In the literature, researchers typically select one Taylor rule-based model to analyze monetary policy of central banks and to derive determinants for the interest rate setting. However, uncertainty about the choice of this respective model is typically neglected. In contrast, we apply a Bayesian model averaging (BMA) approach to extend the Taylor rule to account for model uncertainty driven by heterogeneity in the ECB’s decision-making body, the Governing Council. Our results suggest the following: First, the ECB focuses on the inflation rate when setting interest rates. Second, economic activity indicators were in the focus of the ECB before the financial crisis. Third, over the last decade, the role of economic activity decreased, indicating that inflation is the main driver of monetary policy decisions in the post-crisis period. Fourth, when setting interest rates, central bankers appear to consider more than one model. Keywords: Taylor rule; Bayesian model averaging; Model uncertainty; Monetary policy; ECB (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:68:y:2021:i:c:s0164070421000057 DOI: 10.1016/j.jmacro.2021.103292 Access Statistics for this article Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos More articles in Journal of Macroeconomics from Elsevier |
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