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

Abstract

Monetary policy, ECB, Interest rate setting, Taylor rule, Inflation convergence, E42, E43, E52, E58,

Analysis of the Ecb Monetary Policy Match for the Needs of the Euro Area Countries Needs

“…The equilibrium interest rate (ρ) is commonly used as 2%; this was offered by Tailor (1993), but it was not as widely discussed as other components of the rule. This case is not an issue of theoretical studies (Davig et al, 2005, Leith et al, 2002, and a wellestablished tradition in empirical analysis (Taylor, 1993, Nikolsky-Rzhevskyy 2012, Poeck 2010; on the other hand, some authors propose to use a long-term government bond yield (e. g, the 30-year bond for the USA) as a better reflection of countries' equilibrium interest rates (Davig et al, 2005).…”

“…Analysing the θ coefficient, Taylor (1993) proposed the θ = 0.5 value, and it is used by the vast majority of empirical studies (Clarida et al, 1998, Gerlach et al, 2000, Altavilla, 2000. Analysing the Taylor rule, Poeck (2010) argues that it can be understood just as a weight sum of inflation and output gap variables. However, such an assessment is not appropriate, because the Taylor rule analyses also the inflation target and the equilibrium interest rate.…”

“…Some authors analysed also other potential values of the θ coefficient, which contribute to a better prediction of the CB economic policy (e. g., Breuss, 2002, Poeck, 2010. However, this search has raised a dilemma: a better coefficient θ for a short-term analysis can be found, but it is difficult to interpret this new rule whether it is really optimal.…”

“…One of the ways to deal with it is to rely on moving averages based trend techniques such as the Hodrick-Prescott filter (Hodrick et al, 1997), which is used by Poeck (2010) and Arghyrou (2009) to replace the linear trend, but it also received some criticism: this technique is not appropriate for serious economic downturns (at deep downturns, it is difficult to evaluate whether the HP filter is appropriate, because its slope can be negative, which is against the economic logic). Others (Weidner et.…”

“…The Taylor rule is widely used to analyse the European Union: Breuss (2002), Fourcans et al, (2002), Sauer et al (2003), Ullrich (2003); Gerlach-Kristen (2003)) examine the common euro zone monetary policy and its compliance with the EA interests as a whole. The EA-country differences were analysed by Poeck (2010), and national monetary policy developments before and after accession to the euro zone were analysed by Arghyrou (2009). However, these authors are rather declarative; the different countries' rate deviations are not seen from the optimum currency area theory perspective.…”