Are the Forecasts of Professionals Compatible with the Taylor Rule? Evidence from the Euro Area

2021 ◽  
pp. 1-20
Author(s):  
Robert L. Czudaj
Keyword(s):  
Euro Area ◽  
European Central Bank ◽  
Taylor Rule ◽  
Gdp Growth ◽  
Monetary Policy Shocks ◽  
European Central ◽  
Level Data ◽  
Policy Shocks ◽  
Micro Level ◽  
Over Time

Abstract This article examines if professional forecasters form their expectations regarding the policy rate of the European Central Bank (ECB) consistent with the Taylor rule. In doing so, we assess micro-level data including individual forecasts for the ECB main refinancing operations rate as well as inflation and gross domestic product (GDP) growth for the Euro Area. Our results indicate that professionals indeed form their expectations in line with the Taylor rule. However, this connection has diminished over time, especially after the policy rate hit the zero lower bound. In addition, we also find a relationship between forecasters’ disagreement regarding the policy rate of the ECB and disagreement on future GDP growth, which disappears when controlling for monetary policy shocks proxied by changes in the policy rate in the quarter the forecasts are made.

Dramatis Institutiones

2017 ◽  
Author(s):  
C. Randall Henning
Keyword(s):  
European Union ◽  
Central Bank ◽  
International Monetary Fund ◽  
Euro Area ◽  
European Central Bank ◽  
The European Union ◽  
European Central ◽  
Regime Complex ◽  
Basic Facts ◽  
Institutional Conflict

The regime complex for crisis finance in the euro area included the European Council, Council of the European Union, and Eurogroup in addition to the three institutions of the troika. As the member states acted largely, though not exclusively, through the council system, these bodies stood at the center of the institutional mix. This chapter reviews the institutions as a prelude to examining the dilemmas that confronted them over the course of the crises. It presents a brief review of some of the basic facts about their origins, membership, and organization. Each section then delves more deeply into these institutions’ governance and principles to understand their capabilities and strategic challenges. As a consequence of different mandates and design, the European Commission, European Central Bank, and International Monetary Fund diverged with respect to their approach to financing, adjustment, conditionality, and debt sustainability. This divergence set the stage for institutional conflict in the country programs.

Introduction

2017 ◽  
Author(s):  
C. Randall Henning
Keyword(s):  
Euro Area ◽  
European Central Bank ◽  
International Political Economy ◽  
Euro Crisis ◽  
European Monetary ◽  
Member States ◽  
European Central ◽  
Regime Complex ◽  
The International Monetary Fund ◽  
European Monetary Fund

European governments, against their initial instincts, invited the International Monetary Fund to design financial rescue programs during the euro crisis in cooperation with the European Commission and European Central Bank. These institutions, known as the “troika,” constitute a regime complex in the parlance of international political economy. This book poses four questions about the regime complex for crisis finance in the euro area: Why did European governments choose this particular mix of institutions? What was the strategy of key member states in directing several institutions to collaborate on lending programs? Why did this arrangement endure despite severe conflicts among the institutions? Should the member states of the euro area “go it alone” by creating a European Monetary Fund? This chapter elaborates on these questions and provides an overview of the book.

MONETARY POLICY SWITCHING IN THE EURO AREA AND MULTIPLE STEADY STATES: AN EMPIRICAL INVESTIGATION

2016 ◽  
Vol 21 (5) ◽  
pp. 1175-1188 ◽  
Author(s):  
Gilles Dufrénot ◽  
Guillaume A. Khayat
Keyword(s):  
Steady State ◽  
Euro Area ◽  
European Central Bank ◽  
Empirical Investigation ◽  
Standard Assumption ◽  
Demand Shock ◽  
Liquidity Trap ◽  
European Central ◽  
Parameter Values ◽  
Policy Function

This paper investigates, in the case of the euro area, the standard assumption that the liquidity trap steady state, which arises from the existence of the zero lower bound on the nominal interest rate, is locally unstable. We show that the policy function of the European Central Bank (ECB) is described by a nonlinear Taylor rule. Then, using our estimations, we show that around the liquidity trap steady state the equilibrium is locally determinate for most plausible parameter values. Finally, we find that an inflation shock is more efficient than a demand shock to escape the liquidity trap steady state.

scholarly journals Complexity, Uncertainty, and Monetary Policy: Can the ECB Avoid the Unconventional Becoming the ‘New Normal’?

2019 ◽  
Vol 16 (1) ◽  
Author(s):  
Christopher A. Hartwell
Keyword(s):  
Monetary Policy ◽  
Structural Change ◽  
Central Bank ◽  
Euro Area ◽  
European Central Bank ◽  
Unresolved Issue ◽  
Unconventional Monetary Policy ◽  
New Normal ◽  
European Central

Abstract Worries about Italy and the unresolved issue of euro governance – coupled with uncertainty surrounding Brexit – means that the European Central Bank (ECB) may already be facing its next crisis in the euro area. Unfortunately, the ECB is still fighting the last war, deploying the tools of unconventional monetary policy to address lingering problems while unable institutionally to address needed structural change. This paper looks at the ECB as an institution amongst institutions and shows how even more unconventional approaches will not help to bolster the economy of the euro area. Indeed, given the complexity of money, the effects of expectations, and continued uncertainty, expanding the ECB’s unconventional arsenal is likely to have deleterious consequences across Europe.

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