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The British Opt-Out from the European Monetary Union: Empirical Evidence from Monetary Policy RulesStefano D'AddonaUniversity of Rome 3; City University of New York, CUNY Baruch College - Zicklin School of Business - Department of Economics and Finance Ilaria MusumeciUniversity of Rome III March 26, 2012 CEIS Working Paper No. 225 Abstract: We analyze the current state of monetary integration in Europe, focusing on the United Kingdom’s position regarding the European Monetary Union (EMU). The interest rate decisions of the European Central Bank and the Bank of England are compared through different specifications of the Taylor rule. Comparison of the monetary conduct of these two institutions provides useful guidance in identifying the differences that the British Government claims motivating its refusal to join the EMU. Testing for forward-looking behavior and possible asymmetries in policy responses, we show evidence supporting the opt-out decision taken by the British Government.
Number of Pages in PDF File: 38 Keywords: Taylor rule, European monetary integration, Regime switching models, Interest rate smoothing JEL Classification: E32, E52, E38 working papers seriesDate posted: March 26, 2012Suggested CitationContact Information
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