Empirical Estimates of Reaction Functions for the Euro Area

60 Pages Posted: 4 Feb 2003

See all articles by Dieter Gerdesmeier

Dieter Gerdesmeier

European Central Bank (ECB)

Barbara Roffia

European Central Bank (ECB)

Date Written: January 2003

Abstract

This paper contains a set of estimates of reaction functions for the euro area based on a monthly data set starting in 1985. The main aim is to assess the performance of Taylor rules and to evaluate whether alternative specifications based, inter alia, on the inclusion of additional variables not contained in the original specification proposed by Taylor or the use of different measures of the output gap and the inflation term, can better track the interest rate setting in the euro area. An interesting result is that monetary developments (in the form of a money growth gap indicator derived as the deviation of M3 growth from its estimated reference value) enter significantly as an additional variable in a Taylor-like policy rule specification for the euro area.

Keywords: Taylor rules, reaction functions, monetary policy, euro area

JEL Classification: E58, F41

Suggested Citation

Gerdesmeier, Dieter and Roffia, Barbara, Empirical Estimates of Reaction Functions for the Euro Area (January 2003). ECB Working Paper No. 206. Available at SSRN: https://ssrn.com/abstract=376229

Dieter Gerdesmeier

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Barbara Roffia (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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