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CESifo Working Paper Details

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

Marcus Drometer, Thomas Siemsen, Sebastian Watzka (Website)

CESifo Working Paper No. 4178 (March 2013)

Primary CESifo Category: [7] Monetary Policy and International Finance

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] Institutions and the Macroeconomy
[E420] Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
[E470] Money and Interest Rates: Forecasting and Simulation : Models and Applications
[E520] Monetary Policy
[E580] Central Banks and Their Policies

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