The Monetary Policy of the ECB: A Robin Hood Approach?

35 Pages Posted: 5 Apr 2013

See all articles by Marcus Drometer

Marcus Drometer

Ludwig Maximilian University of Munich

Thomas Siemsen

Ludwig Maximilian University of Munich

Sebastian Watzka

Ludwig Maximilian University of Munich

Date Written: June 20, 2013

Abstract

We derive counterfactual national interest rate paths for the 17 Euro Area countries for the period 1999 to 2012 to approximate the interest rates countries would have implemented had they still been able to conduct independent monetary policy. We find that prior to the financial crisis the counterfactual interest rates for Germany trace the realized EONIA rate very closely, while monetary policy has been too loose especially for the southern European countries. This situation was inverted with the onset of the financial crisis. To shed light on the underlying decision rule of the ECB, we rank different mechanisms according to their ability to aggregate the national counterfactual paths to the EONIA rate. We find that mechanisms which focus on countries which fare economically worse than the Euro Area average explain the EONIA path best.

Keywords: decision rule, aggregation rule, counterfactual interest rate path, ECB, Bundesbank

JEL Classification: E020, E420, E470, E520, E580

Suggested Citation

Drometer, Marcus and Siemsen, Thomas and Watzka, Sebastian, The Monetary Policy of the ECB: A Robin Hood Approach? (June 20, 2013). CESifo Working Paper Series No. 4178. Available at SSRN: https://ssrn.com/abstract=2244821

Marcus Drometer

Ludwig Maximilian University of Munich ( email )

Geschwister-Scholl-Platz 1
Munich, Bavaria 80539
Germany
+49 89 21802249 (Phone)

Thomas Siemsen

Ludwig Maximilian University of Munich ( email )

Geschwister-Scholl-Platz 1
Munich, Bavaria 80539
Germany

Sebastian Watzka (Contact Author)

Ludwig Maximilian University of Munich ( email )

Geschwister-Scholl-Platz 1
Munich, Bavaria 80539
Germany

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