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EstimatingMonetary Policy ReactionFunctions:Comparison between the European Central Bank andS wedish Central Bank

Author

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  • K. Owusu, Benjamin

    (Bielefeld University, Germany)

Abstract

This study estimated and compared a forward-looking Taylor-type reaction function between the European Central Bank (ECB) and Swedish Central Bank (Riksbank).Fir st, an estimated baseline model shows that, compared with the ECB, the Riksbank is an aggressor based on its responses to expected inflation and output gap.S econd, the estimated baseline model significantly tracks both central banks’ actual interest rates, though with certain deficiencies.Fur thermore, this study augments the baseline model by exploring additional variables that appropriately describes the ECB and Riksbank’s monetary policy.W e observed that foreign interest rate, notably the federal funds rate, influence the ECB’s monetary policy to a certain degree.M oreover, the ECB’s short-term interest rate and real exchange rate impact the Riksbank’s monetary policy.A lthough foreign interest rate explains the ECB and Riksbank’s monetary policy, real exchange rate also explains the Riksbank’s monetary policy (small open economy) than that of the ECB.

Suggested Citation

  • K. Owusu, Benjamin, 2020. "EstimatingMonetary Policy ReactionFunctions:Comparison between the European Central Bank andS wedish Central Bank," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 35(3), pages 396-425.
    • Handle: RePEc:ris:integr:0804
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    Citations

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    Cited by:

    1. Patricks Ogiji & Tersoo Shimonkabir Shitile & Nuruddeen Usman, 2022. "Estimating asymmetries in monetary policy reaction function: an oil price augmented Taylor type rule for Nigeria under unconventional regime," Economic Change and Restructuring, Springer, vol. 55(3), pages 1655-1672, August.
    2. Alex Ilek & Guy Segal, 2022. "A Simple Theory-Based Estimate of the Real Natural Rate of Interest in Open Economies," Bank of Israel Working Papers 2022.06, Bank of Israel.
    3. Linas Jurkšas & Francisco Gomes Pereira, 2023. "Do the projected fiscal deficits play a role in ECB monetary policymaking?," Working Papers REM 2023/0258, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.

    More about this item

    Keywords

    Monetary policy; Taylor rule; European Central Bank; Riksbank;
    All these keywords.

    JEL classification:

    • 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

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