Lessons from the ECB Experience: Frankfurt Still Matters!
23 Pages Posted: 9 Mar 2007
Date Written: March 5, 2007
This paper compares the European Central Bank's conduct of monetary policy (1999-2005) with that of the Bundesbank (after the German Unification: 1990-1998) in order to test the hypothesis of an ECB with "Bundesbank's preferences" put forward in the theoretical literature (Alesina and Grilli 1993, Fatum 2006). Econometric tests and simulations based on monetary policy reaction functions show that the continuation of the former Bundesbank regime is supported by the data. Given this empirical evidence we discuss the lessons for future Monetary Unions stemming from the ECB experience.
Keywords: EMU, Monetary Policy, Reaction Function, Taylor rule, ECB, Bundesbank
JEL Classification: E52, E58
Suggested Citation: Suggested Citation