Mandler, Martin (2010): Explaining ECB and Fed interest rate correlation: Economic interdependence and optimal monetary policy.
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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.
|Item Type:||MPRA Paper|
|Original Title:||Explaining ECB and Fed interest rate correlation: Economic interdependence and optimal monetary policy|
|Keywords:||optimal monetary policy; monetary policy reaction function; vector autoregressions|
|Subjects:||E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E47 - Forecasting and Simulation: Models and Applications
|Depositing User:||Martin Mandler|
|Date Deposited:||19. Oct 2010 08:10|
|Last Modified:||12. Feb 2013 22:19|
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