The Stress of Having a Single Monetary Policy in Europe

Jan-Egbert Sturm and Timo Wollmershäuser

No 2251, CESifo Working Paper Series from CESifo

Abstract: This paper estimates forward-looking Taylor rules for the euro area. Using the asymmetries in inflation and cyclical output developments across countries, we investigate the adequacy of the single monetary policy for each of the European Monetary Union (EMU) member countries. Notable differences emerge across the countries. Taking a euro area perspective, we also show that it depends upon the underlying country weighting scheme in the monetary decision process of the ECB whether or not there has been a synchronisation of business and inflation cycles among the EMU member countries over the years. Finally, we produce an estimate of the actual policy weights the ECB has implicitly attached to each of the member countries. Developments in small member countries have received more than proportional weights in actual monetary policy decisions of the ECB.

Keywords: Taylor rule; monetary policy; ECB; stress; business cycle synchronisation (search for similar items in EconPapers)
JEL-codes: C22 E52 E58 (search for similar items in EconPapers)
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (44)

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Working Paper: The Stress of Having a Single Monetary Policy in Europe (2008)
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