Does one size fit all? A Taylor-rule based analysis of monetary policy for current and future EMU members
Faculty of Applied Economics
Antwerpen :UA, 2005
Research paper / UA, Faculty of Applied Economics ; 2005:26
University of Antwerp
This paper uses the Taylor rule to examine the appropriateness of ECB interest rate policy for the initial EMU members and the ten new EMU member states some of whom are expected to join the Eurozone in 2006-7. 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 ECBs policy does not fit individual EMU members equally well and this result is unlikely to be changed with the addition of the ten new members, which will have only a marginal effect on the ECB interest rate stance.