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Effectiveness of Monetary Policy in Euroland

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Abstract

In this paper we analyze the effects of different decision rulesin the ECB on monetary stability. We consider a model where asymmetricshocks and divergent propagation of shocks on output and inflation arepotential causes of tension within the ECB concerning the conduct ofmonetary policy. Given divergence of desired interest rates we analyze theeffect of different voting procedures within the Governing Council of theECB. We find that under ECB-rule the ECB Board is able to impose its desiredinterest rate as the Euro-wide interest rate. Large countries benefit fromECB-rule as it implies higher voting power for them at the GoverningCouncil. Our welfare analysis indicates that under particular parameterspecifications ECB-rule is strictly preferred to Nationalistic rule.

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Authors and Affiliations

  1. Catholic University of Leuven C.E.S., Naamsestraat 69, B-3000, Leuven

    Paul De Grauwe (Corresponding author. e-mail), Hans Dewachter & Yunus Aksoy

Authors
  1. Paul De Grauwe
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  2. Hans Dewachter
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  3. Yunus Aksoy
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De Grauwe, P., Dewachter, H. & Aksoy, Y. Effectiveness of Monetary Policy in Euroland. Empirica 26, 299–318 (1999). https://doi.org/10.1023/A:1007062326322

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  • DOI: https://doi.org/10.1023/A:1007062326322

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