The ECB interest rate rule under the Duisenberg presidency

Abstract This paper presents estimates of the European Central Bank (ECB)'s interest rate rule using monthly data for the period of the Willem F. Duisenberg presidency (from January 1999 to October 2003). Our results show that, like the US Federal Reserve, the ECB appears to be concerned with fluctuations in economic activity. It increases its short-term interest rate if inflation deviates from target, this reaction being stronger if based on future inflation and weaker if based on current inflation. The seemingly soft response to current inflation derives from a concern for exchange rate stability and may reflect the Bank's forecast of future inflation. The ECB also appears to smooth its interventions in the money market.

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