Measuring Monetary Policy Efficiency in European Union Countries: The Pre-EMU Years

ICFAI Journal of Monetary Economics, Vol. 5, No. 1, pp. 60-83, February 2007

Posted: 20 Aug 2011

See all articles by Stefan Krause

Stefan Krause

Banque de France - Economic Study and Research Division; Sciences Po

Date Written: August 18, 2011

Abstract

This paper proposes a method for measuring the contribution of an improved monetary policy to the changes in macroeconomic performance - identified with inflation and output stability. The technique used involves estimating actual and optimal policy rules as a function of the aggregate supply and demand shocks, with the purpose of examining how much of the change in performance can be accounted for by changes in the volatility of the aggregate shocks and how much can be ascribed to improvements in policy efficiency. A study of the changes in the macroeconomic performance of 14 European Union countries from the 1980s to the 1990s is undertaken here. The findings suggest that an improved monetary policy has played an important stabilization role in almost all European Union countries, while a diminished exposure to aggregate shocks has largely contributed towards improved performance in at least seven countries.

Suggested Citation

Krause, Stefan, Measuring Monetary Policy Efficiency in European Union Countries: The Pre-EMU Years (August 18, 2011). ICFAI Journal of Monetary Economics, Vol. 5, No. 1, pp. 60-83, February 2007, Available at SSRN: https://ssrn.com/abstract=965118

Stefan Krause (Contact Author)

Banque de France - Economic Study and Research Division ( email )

31, rue Croix des Petits Champs
75049 Paris Cedex 01
FRANCE

Sciences Po ( email )

27 rue Saint-Guillaume
Paris Cedex 07, 75337
France

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