The Stress of Having a Single Monetary Policy in Europe

CESifo Working Paper Series No. 2251

KOF Working Paper No. 190

45 Pages Posted: 19 Mar 2008

See all articles by Jan-Egbert Sturm

Jan-Egbert Sturm

KOF Swiss Economic Institute, ETH Zurich; CESifo (Center for Economic Studies and Ifo Institute)

Timo Wollmershaeuser

Ifo Institute for Economic Research; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: March 2008

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

JEL Classification: C22, E52, E58

Suggested Citation

Sturm, Jan-Egbert and Wollmershaeuser, Timo, The Stress of Having a Single Monetary Policy in Europe (March 2008). KOF Working Paper No. 190; KOF Working Paper No. 190. Available at SSRN: https://ssrn.com/abstract=1107780

Jan-Egbert Sturm

KOF Swiss Economic Institute, ETH Zurich ( email )

Zurich
Switzerland

HOME PAGE: http://www.kof.ethz.ch

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, 81679
Germany

HOME PAGE: http://www.cesifo.de

Timo Wollmershaeuser (Contact Author)

Ifo Institute for Economic Research ( email )

Poschingerstrasse 5
Munich, 81879
Germany
+49 89 9224 1406 (Phone)
+49 89 9224 1462 (Fax)

HOME PAGE: http://www.ifo.de/link/wollmershaeuser_t.htm

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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