Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/25982
Authors: 
Flaig, Gebhard
Wollmershäuser, Timo
Year of Publication: 
2007
Series/Report no.: 
CESifo working paper 1937
Abstract: 
This paper presents a stress indicator for the Euro-zone that summarizes developments of trends and cycles in real GDP and inflation in the member countries. Stress in a country is defined as the difference between the country's actual short-term interest rate and the interest rate that would prevail if that country was able to follow an "optimal" monetary policy. The optimal monetary policy rule corresponds to the policy rule that was adopted by the country in the pre-EMU period and depends on the trend growth rates of GDP and consumer prices as well as on the related cyclical components. The main results are that stress in the Euro-zone is mainly due to different trend growth rates and that for most of the Euro-zone countries interest rates have been too low over the 1999-2005 period. Stress in Germany is close to zero, implying that the ECB continues the policy of the Bundesbank.
Subjects: 
stress indicator
Taylor rule
monetary union
divergence
trends
cycles
JEL: 
E31
E32
E58
Document Type: 
Working Paper

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