Interest rate setting at the ECB: Individual preferences and collective decision making

José Ramón Cancelo, Diego Varela and José Sánchez-Santos ()

Journal of Policy Modeling, 2011, vol. 33, issue 6, 804-820

Abstract: We investigate whether the members of the Governing Council of the European Central Bank take into account the specific economic conditions of their states of origin, to set the interest rates for the euro area. Testing the national-based view against the Europeanist perspective is a challenging issue, because voting inside the Governing Council is secret, and the final outcome depends both on the individual preferences and the procedures followed by the Governing Council to arrive at a decision. Accordingly, we model interest rate setting as a two-stage process: first, each member of the Governing Council sets his/her preferred rate, and next the Governing Council meets and decides the actual figure. Our empirical analysis shows that domestic developments play a major role in determining the preferred interest rate of the each member; and that some members exert agenda setting power, that precludes some interest rate policies to be considered at the meeting.

Keywords: European Central Bank; Monetary policy; Policy reaction function; Committees; Nationalistic bias; Voting models; Agenda setting (search for similar items in EconPapers)
JEL-codes: C53 C54 D78 E52 E58 F55 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:33:y:2011:i:6:p:804-820

DOI: 10.1016/j.jpolmod.2011.08.017

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