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Non-technical SummaryThere is an ongoing discussion about monetary policy in a monetary union when the countries forming this union are heterogenous with respect to their economic development.Because of the heterogeneity, individual countries might prefer a monetary policy that is different from the common monetary policy. The Governing Council, which is the decision- We do not detect a dominant influence of specific countries of the monetary union. Moreover, the results support the view that the decisions of the ECB are taken with respect to the developments in the whole euro area, and not with respect to selected countries.However, an influence can be detected for the dispersion of the developments measured by the maximum inflation and minimum economic sentiment values.The Impact of Country-Specific Economic
Developments on ECB DecisionsKatrin Ullrich (ZEW Mannheim) *
June 2006
AbstractThe discussion about country-specific influence on the interest rate decisions of the European Central Bank does not cease. To investigate the possibility of regional influence on the determination of the policy rate, we estimate Taylor-type reaction functions for the period from 1999 to 2005 and include country-specific variables of the euro zone member states. We do not find convincing evidence that country-specific economic developments influence the decisions of the ECB Governing Council. However, the maximum inflation rate and the minimum economic sentiment of the euro area seem to have an effect on the decisions.
JEL Classification: E58, E52
