Interest Rate Setting by the ECB: Words and Deeds

49 Pages Posted: 15 Feb 2005

See all articles by Stefan Gerlach

Stefan Gerlach

Central Bank of Ireland; Centre for Economic Policy Research (CEPR)

Date Written: December 2004

Abstract

This Paper discusses interest rate setting by the ECB between 1999 and 2004. I develop from the Monthly Bulletins quantitative indicators of the Governing Council's assessment of inflation, economic activity, and M3 growth, and investigate their impact on its interest rate decisions. I also estimate reaction functions with ordered probit techniques, using the Monthly Bulletins to guide the choice of variables for the analysis. The results show that the ECB reacts strongly to economic sentiment indicators as measures of the state of the real economy. Furthermore, I find statistically significant reactions to inflation and M3 growth.

Keywords: ECB, empirical reaction functions, ordered probit

JEL Classification: E43, E52, E58

Suggested Citation

Gerlach, Stefan, Interest Rate Setting by the ECB: Words and Deeds (December 2004). Available at SSRN: https://ssrn.com/abstract=666846

Stefan Gerlach (Contact Author)

Central Bank of Ireland ( email )

P.O. Box 559
Dame Street
Dublin, 2
Ireland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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