The Fed and the ECB: Why such an apparent difference in reactivity?

Grégory Levieuge and Alexis Penot ()

No 804, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: Compared with the U.S., the amplitude of the European monetary policy rate cycle is strikingly narrow. Is it an evidence of a less reactive ECB? This observation can certainly reflect the preferences and then the strategy of the ECB. But its greater inertia must also be assessed in the light of the singularity of the European structure and of the shocks hitting it. From this perspective, several contributions assert that the nature, size and persistence of shocks mainly explain the different interest rate setting. Therefore, they rely on the idea that both areas share the same monetary policy rule and, more surprising, the same structure. This paper aims at examining this conclusions with an alternative modelling. The results confirm that the euro area and U.S. monetary policy rules are not fundamentally different. But we reject the differences of nature and amplitude of shocks. What is often interpreted as such is in fact the consequence of how distinctly both economies absorb shocks. So differences in the amplitude of the interest rate cycles in both areas are basically explained by structural dissimilarities.

Keywords: interest rate; macroeconomic shocks; monetary policy rules; policy activism; structural divergence (search for similar items in EconPapers)
JEL-codes: C51 E52 E58 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2008
New Economics Papers: this item is included in nep-cba, nep-eec, nep-fmk, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
ftp://ftp.gate.cnrs.fr/RePEc/2008/0804.pdf (application/pdf)

Related works:
Working Paper: The FED and the ECB: Why such an apparent difference of reactivity? (2010)
Journal Article: The Fed and the ECB: why such an apparent difference in reactivity? (2009)
Working Paper: The Fed and the ECB: Why such an apparent difference in reactivity? (2008)
Working Paper: The FED and the ECB: Why Such an Apparent Difference in Reactivity? (2008)
Working Paper: THE FED and the ECB: Why Such an Apparent Difference in Reactivity? (2008)
Working Paper: The FED and the ECB: Why Such an Apparent Difference in Reactivity? (2008)
Working Paper: The Fed and the ECB: Why Such an Apparent Difference in Reactivity ? (2008)
Working Paper: The Fed and the ECB: Why Such an Apparent Difference in Reactivity ? (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gat:wpaper:0804

Access Statistics for this paper

More papers in Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon Contact information at EDIRC.
Bibliographic data for series maintained by Nelly Wirth ( this e-mail address is bad, please contact ).