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MAGKS Joint Discussion Paper Series in Economics, Universität Marburg >
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http://hdl.handle.net/10419/56537
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| Title: | | Explaining ECB and Fed interest rate correlation: Economic interdependence and optimal monetary policy  |
| Authors: | | Mandler, Martin |
| Issue Date: | | 2010 |
| Series/Report no.: | | Joint discussion paper series in economics 25-2010 |
| Abstract: | | This paper studies whether the observed high correlation between monetary policy in the U.S. and the Euro area can be explained by economic fundamentals, i.e. by macroeconomic interdependence between the two regions. We show that an optimal monetary policy reaction function for the ECB that accounts explicitly for economic interrelationships between the two economies reproduces substantial parts of the observed patterns of interest rate correlation and represents a good approximation to the actually observed monetary policy of the ECB. It implies strong reactions to shocks to US variables, particularly to shocks to the Federal Funds Rate. |
| Subjects: | | optimal monetary policy monetary policy reaction function vector autoregressions |
| JEL: | | E47 E52 E58 |
| Document Type: | | Working Paper |
| Appears in Collections: | | MAGKS Joint Discussion Paper Series in Economics, Universität Marburg
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