Modeling interest rate setting at the European Central Bank with bargaining models and counterfactuals

James McNeil

Empirical Economics, 2024, vol. 66, issue 3, No 4, 1037-1053

Abstract: Abstract I analyze whether the interest rate decisions of the European Central Bank (ECB) favor the national interests of the largest euro-area member states. Because voting records are unavailable, unobserved monetary policy preferences are based on hypothetical interest rate paths generated from monetary policy rules estimated in the pre-euro era. Comparing the actual euro-area interest rate to these counterfactual interest rates, I do not find that ECB interest rates are best described by competing national interests. Instead, countries appear to make decisions with respect to euro-area economic conditions. These findings contradict several studies which find that policy disproportionately favors the national objectives of larger member states.

Keywords: Monetary policy; European Central Bank; Interest rates; Taylor rule (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Modeling interest rate setting at the European Central Bank with bargaining models and counterfactuals (2020)
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DOI: 10.1007/s00181-023-02481-z

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