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

This article uses the Taylor rule to examine the appropriateness of European Central Bank (ECB) interest rate policy for the initial European Monetary Union (EMU) members and the 10 new EMU member states some of whom are expected to join the Eurozone in 2006-2007. Specifically it addresses three que...

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Bibliographic Details
Published in:Applied economics 2008-01, Vol.40 (2), p.193-199
Main Authors: Moons, C., Van Poeck, A.
Format: Article
Language:English
Subjects:
Central banks
Economic and Monetary Union
EU enlargement
EU membership
Euro
Europe
European Monetary Union
Eurozone
Interest rates
Monetary policy
Studies
Taylor rule
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Summary:This article uses the Taylor rule to examine the appropriateness of European Central Bank (ECB) interest rate policy for the initial European Monetary Union (EMU) members and the 10 new EMU member states some of whom are expected to join the Eurozone in 2006-2007. Specifically it addresses three questions. (1) Are there differences between the interest rate aggregated from the Taylor interest rates of individual member states in the euro area and the interest rate set by the ECB? (2) For which countries do the desired interest rates according to the original Taylor rule and the interest rate of the euro area differ most and in which respect? (3) The last question is whether the interest rate gaps change over time. We find that the ECB's policy does not fit individual EMU members equally well and this result is unlikely to be changed with the addition of the 10 new members, which will have only a marginal effect on the ECB interest rate stance.
ISSN:0003-6846
1466-4283
DOI:10.1080/00036840600749763