The Euro and Monetary Policy Transparency

Guglielmo Maria Caporale and Andrea Cipollini

Eastern Economic Journal, 2002, vol. 28, issue 1, 59-70

Abstract: This paper focuses on a possible explanation for the weakness of the euro, namely the lack of transparency of the European Central Bank's (ECB) monetary policy. In order to obtain a time-varying measure of monetary policy uncertainty in both the U.S. and Euroland, we estimate a Stochastic Volatility model using policy-adjusted short-term interest rates. We also analyze directly the impact of higher uncertainty on the euro-dollar exchange rate. The empirical findings are in line with those of other studies, and show that the U.S. Fed is more transparent than the ECB. This results in higher volatility of European interest rates, capital outflows, and a weaker euro vis-a-vis the U.S. dollar.

Keywords: Exchange Rates; Interest Rates; Interest; Monetary Policy; Monetary; Policy (search for similar items in EconPapers)
JEL-codes: E42 E52 F33 F36 (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eej:eeconj:v:28:y:2002:i:1:p:59-70

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