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An evaluation of ECB policy in the Euro's big four

journal contribution
posted on 16.02.2017 by Eric Olson, Mark Wohar
© 2016 Elsevier Inc. The Taylor curve can be viewed as an efficiency frontier displaying the trade-off between the volatility of output and volatility of inflation. We build on the existing literature in this area and view Taylor curves as a lens through which to gauge the deviations of actual ECB policy from the optimum. We employ data over the period 1999-2013 period to measure the orthogonal distance of the observed volatilities from the Taylor curve in Germany, France, Italy, Spain, and the Euro area using a recursive VARs. We find that the distance has substantially increased in all four countries suggesting that monetary policy has become less efficacious for Germany, France, Italy, and Spain since the financial crisis in 2007-2008. We also estimate counterfactual Taylor rules and find that a simple Taylor rule would have only substantially improved monetary policy efficacy in Germany.

History

School

  • Business and Economics

Department

  • Business

Published in

Journal of Macroeconomics

Volume

48

Pages

203 - 213

Citation

OLSON, E. and WOHAR, M.E., 2016. An evaluation of ECB policy in the Euro's big four. Journal of Macroeconomics, 48, pp. 203-213.

Publisher

© Elsevier

Version

VoR (Version of Record)

Publisher statement

This work is made available according to the conditions of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) licence. Full details of this licence are available at: https://creativecommons.org/licenses/by-nc-nd/4.0/

Acceptance date

01/03/2016

Publication date

2016

Notes

This paper is in closed access.

ISSN

0164-0704

Language

en

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