Asymmetries in the Trans-Atlantic Monetary Policy Relationship: Does the ECB Follow the Fed?

39 Pages Posted: 17 Mar 2005

See all articles by Ansgar Hubertus Belke

Ansgar Hubertus Belke

University of Duisburg-Essen - Department of Economics and Business Administration; IZA Institute of Labor Economics; Centre for European Policy Studies

Daniel Gros

Centre for European Policy Studies, Brussels; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: February 2005

Abstract

The belief that the ECB follows the US Federal Reserve in setting its policy is so entrenched with market participants and commentators that the search for empirical support would seem to be a trivial task. However, this is not the case. We find that the ECB is indeed often influenced by the Fed, but the reverse is true at least as often if one considers longer sample periods. There is empirically little support for the proposition that there has been for a long time a systematic asymmetric leader-follower relationship between the ECB and the Fed. Only after September 2001 is there more evidence of such an asymmetry. We also find a clear-cut structural break between the pre-EMU and the EMU period in terms of the relationship between short term interest rates on both sides of the Atlantic.

Keywords: co-movement of interest rates, European Central Bank, Federal Reserve, monetary policy, policy coordination

JEL Classification: E52, E58, F41

Suggested Citation

Belke, Ansgar Hubertus and Gros, Daniel, Asymmetries in the Trans-Atlantic Monetary Policy Relationship: Does the ECB Follow the Fed? (February 2005). Available at SSRN: https://ssrn.com/abstract=688341 or http://dx.doi.org/10.2139/ssrn.688341

Ansgar Hubertus Belke (Contact Author)

University of Duisburg-Essen - Department of Economics and Business Administration ( email )

Universitätsstr. 9
Essen, 45141
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for European Policy Studies ( email )

1 Place du Congres, 1000
Brussels, 1000
Belgium

Daniel Gros

Centre for European Policy Studies, Brussels ( email )

1 Place du Congres
B-1000 Brussels, 1000
Belgium

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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