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Interest Rate Setting by the ECB: Words and Deeds

Stefan Gerlach ()

No 4775, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This Paper discusses interest rate setting by the ECB between 1999 and 2004. I develop from the Monthly Bulletins quantitative indicators of the Governing Council?s assessment of inflation, economic activity, and M3 growth, and investigate their impact on its interest rate decisions. I also estimate reaction functions with ordered probit techniques, using the Monthly Bulletins to guide the choice of variables for the analysis. The results show that the ECB reacts strongly to economic sentiment indicators as measures of the state of the real economy. Furthermore, I find statistically significant reactions to inflation and M3 growth.

Keywords: Ecb; Empirical reaction functions; Ordered probit (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 (search for similar items in EconPapers)
Date: 2004-12
New Economics Papers: this item is included in nep-cba, nep-dcm, nep-eec, nep-mac and nep-mon
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