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Too small to be independent? On the influence of ECB monetary policy on interest rates of the EEA countries

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  • Goczek, Łukasz
  • Partyka, Karol J.

Abstract

Monetary policy independence is regarded as the central argument in favour of floating exchange rates and monetary integration. We evaluate the actual independence of non-euro members of the European Economic Area by using heterogeneous panel cointegration methods that allow cross-dependency. We show that domestic interest rates follow the euro interest rates. These spillovers imply a low monetary independence despite the insulation given by floating exchange rate regimes and inflation-targeting frameworks. We therefore find significant spillover effects of the European Central Bank policy and argue that the costs of monetary integration in Europe may be lower than expected.

Suggested Citation

  • Goczek, Łukasz & Partyka, Karol J., 2019. "Too small to be independent? On the influence of ECB monetary policy on interest rates of the EEA countries," Economic Modelling, Elsevier, vol. 78(C), pages 180-191.
    • Handle: RePEc:eee:ecmode:v:78:y:2019:i:c:p:180-191
    DOI: 10.1016/j.econmod.2018.09.019
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    Cited by:

    1. Magdalena Grothe, 2023. "Monetary Policy Spillovers to Polish Financial Markets," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 2, pages 1-10.
    2. Arčabić, Vladimir & Škrinjarić, Tihana, 2021. "Sharing is caring: Spillovers and synchronization of business cycles in the European Union," Economic Modelling, Elsevier, vol. 96(C), pages 25-39.
    3. Gabriel Caldas Montes & Irineu da Silva Rodrigues Júnior & Júlio Cesar Albuquerque Bastos & Linican Monteiro Batista, 2024. "Effects of monetary policy credibility and the open economy trilemma on monetary policy efficiency," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(2), pages 1236-1258, April.
    4. Szafranek, Karol, 2021. "Disentangling the sources of inflation synchronization. Evidence from a large panel dataset," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 229-245.

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    More about this item

    Keywords

    Panel cointegration; Monetary integration; Monetary policy independence; Trilemma; Dilemma; Exchange-rate regime; Global financial cycle;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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