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Title: An evaluation of ECB policy in the Euro's big four
Authors: Olson, Eric
Wohar, Mark E.
Keywords: Monetary policy
Taylor curve
Optimal control
Issue Date: 2016
Publisher: © Elsevier
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.
Abstract: © 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.
Description: This paper is in closed access.
Version: Published
DOI: 10.1016/j.jmacro.2016.03.001
URI: https://dspace.lboro.ac.uk/2134/24144
Publisher Link: http://dx.doi.org/10.1016/j.jmacro.2016.03.001
ISSN: 0164-0704
Appears in Collections:Closed Access (Business)

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