Taking the European Central Bank to the Data

Fendel Ralf () and Frenkel Michael ()
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Fendel Ralf: WHU – Otto Beisheim Graduate School of Management, Burgplatz 2, D – 56179 Vallendar, Germany
Frenkel Michael: WHU – Otto Beisheim Graduate School of Management, Burgplatz 2, D – 56179 Vallendar, Germany

Zeitschrift für Wirtschaftspolitik, 2005, vol. 54, issue 1, 101-114

Abstract: The paper discusses the conduct of monetary policy of the ECB. We estimate monetary policy rules for the sample period 1999 through 2004. The results are in line with the change of the strategy the ECB recently announced. The implied inflation targets that are extracted from the regressions are close to the target range that the ECB has formulated. We also find that the interest rate setting behavior of the ECB is affected by M3 growth as a leading indicator for future inflation and real activity but not as an independent argument of the monetary policy rule. Furthermore, we validate the ECB’s announcement of no explicit exchange rate target beside the fact that the exchange rate serves as an indicator for future inflation.

Date: 2005
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DOI: 10.1515/zfwp-2005-0106

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