Does one size fit all? A Taylor-rule based analysis of monetary policy for current and future EMU members

Moons, Cindy; Poeck, André Van

doi:10.1080/00036840600749763

Cited by 15 publications

(8 citation statements)

References 13 publications

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“…Not only is this a problem of its own, it may also indirectly impact on inflation divergence. Finally, the inclusion of new member states, with low price and productivity levels, and strongly different business cycles, may render the task of the ECB more difficult (see Moons and Van Poeck 2008).…”

Section: Discussionmentioning

confidence: 99%

One Money and Sixteen Needs: Has the ECB’s Monetary Policy Become More Balanced Towards the Needs of the Member States?

Poeck

2010

De Economist

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Section: Discussionmentioning

confidence: 99%

One Money and Sixteen Needs: Has the ECB’s Monetary Policy Become More Balanced Towards the Needs of the Member States?

Poeck

2010

De Economist

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“…Various studies have explored the implications of the Taylor rule within the sphere of a stylized monetary union characterized by "central" countries, with low inflation and a tendency towards current account surplus, and "peripheral" countries, with higher inflation and current account deficit. In presence of asymmetric shocks affecting the aggregate demand for goods and services, the monetary policy rule adopted by the central bank could be in line with the economic trends of the central countries, and hence to be suboptimal for the peripheral countries of the union (Artis, 2003;Moons and Van Poeck, 2008;Chortareas, 2008).…”

Section: Introductionmentioning

confidence: 99%

‘Solvency rule’ and capital centralisation in a monetary union

Brancaccio¹,

Fontana

2015

CAMECO

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Brancaccio and Fontana (2013) have suggested that the central bank influences the solvency conditions of firms and households in the economic system. This "solvency rule" is examined here within a stylised model of a monetary union characterised by different rates of accumulation and inflation across its two member countries. The rule highlights the existence of a relationship between the interest rate set by the central monetary authority, and the allocation of ownership of physical capital among the member countries of the monetary union, i.e. the "rates of capital centralization". The paper also shows the conditions under which the existence and stability of policy mechanisms, including deflationary, currency devaluation and government intervention policies, are able to guarantee the achievement and maintenance of the solvency condition in a stylised monetary union. (0)113 343 4465). We are grateful to the two anonymous referees of this Journal for very helpful comments and suggestions, which have helped to improve the paper considerably. All errors are our responsibility. VECCHIO Brancaccio and Fontana (2013) have suggested that the central bank influences the solvency conditions of firms and households in the economic system. This "solvency rule" is examined here within a stylised model of a monetary union characterised by different rates of accumulation and inflation across its two member countries. KeywordsThe rule highlights the existence of a relationship between the interest rate set by the central monetary authority, and the allocation of ownership of physical capital among the member countries of the monetary union, i.e. the "rates of capital centralization".The paper also shows the conditions under which the existence and stability of policy mechanisms, including deflationary, currency devaluation and government intervention policies, are able to guarantee the achievement and maintenance of the solvency condition in a stylised monetary union. NUOVOBrancaccio and Fontana (2013) have suggested that the central bank influences the solvency conditions of firms and households in the economic system. This "solvency rule" is examined here within a stylised model of a monetary union characterised by different rates of accumulation and inflation across its two member countries.The rule highlights the existence of a relationship between the interest rate set by the central monetary authority and the "rates of capital centralization", which describe the changes in the allocation of ownership of physical capital among the member countries of the monetary union.The paper also shows the nexus between solvency and government debt sustainability and examines the implications of deflationary or currency devaluation policies for the solvency condition and the speed of capital centralization. Commented [GF1]:I am not sure I follow this suggestion. As far as I remember, the "rates of centralization" of physical capital refer to the net sales or acquisitions of existing capital that are necessary to guarante...

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“…It is very likely that different euro countries prefer different interest rates. Moons and Van Poeck (2008) show on the basis of a normative Taylor-rule that the monetary policy of the ECB clearly does not fit the needs of all individual euro members. Such inappropriate policy rates can potentially lead to domestic macroeconomic imbalances.…”

Section: Introductionmentioning

confidence: 96%

Did Monetary Policy Fuel the Housing Bubble in Ireland?

Moons

Hellinckx

2015

SSRN Journal

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This paper provides empirical evidence of the role of the euro in the genesis of the recent Irish financial-economic crisis caused by a regional housing boom and its inevitable bust. By using a Taylor-rule, estimated by Generalized Method of Moments, we measure the appropriateness of the ECB's one-size-fits-all policy rate for the Irish economy. A counterfactual analysis suggests that the Irish interest rate should have been on average 6.5% higher. In addition, using a multivariate housing model, we provide econometric evidence for the causal relationship between the low interest rate and the Irish housing boom. Under an alternative sovereign monetary policy, the average house price would have been 25 to 30 percent lower just before the housing bust in the second quarter of 2007. In addition, it shows that a monetary policy tailored to the needs of the member state is enough to prevent housing prices from dramatically increasing and suggests that it is not necessary to include a lean against house price fluctuations in monetary policy strategies. Jel Code: E5, F6

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Does one size fit all? A Taylor-rule based analysis of monetary policy for current and future EMU members

Cited by 15 publications

References 13 publications

One Money and Sixteen Needs: Has the ECB’s Monetary Policy Become More Balanced Towards the Needs of the Member States?

One Money and Sixteen Needs: Has the ECB’s Monetary Policy Become More Balanced Towards the Needs of the Member States?

‘Solvency rule’ and capital centralisation in a monetary union

Did Monetary Policy Fuel the Housing Bubble in Ireland?

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