Abstract
Abstract. In this paper, using the Taylor rule (Taylor, 1993), the European Central Bank (ECB) monetary policy in 2000–2012, as well as individual interest rate needs of the euro area (EA) countries are analysed. It is assumed that the estimated Taylor rule interest rates are optimal for individual members. We have analysed whether the actual ECB interest rates and the calculated rates are different and have become more balanced towards individual countries’ needs. The work focuses attention on the last period (2008–2012) when the EA faced economic problems and an asymmetric shock. The analysis shows controversial results: on the one hand, the interest deviation mean decreases (just a little), but an increasing gap between individual needs can be seen: some countries are becoming increasingly divorced from the general EA needs. It makes them very vulnerable, and there is a risk that these countries in the face of asymmetric challenges can be “left behind” by the ECB focusing on the EA as a whole. Also, in this paper, the stationarity of the calculated deviations is analysed to help understand their nature. This approach is new, and the author is unaware of similar works. Analysis of the optimal interest rate dynamics has revealed that Germany needed the interest rates that were opposite to the needs of Spain and Greece and susceptible to divergence, so this led to the ECB difficulties in determining the proper interest for all countries’ needs. The EA as a currency area is most optimal for Belgium, Cyprus, Finland, France, Italy, and the Netherlands from the interest rate setting perspective.Key words: the Taylor rule, optimal monetary policy, asymmetric shocks, optimal currency area
Highlights
Before creating the euro area, there had been a number of economic and political discussions about the euro zone as a monetary union to match with its individual member states’ economic interests
This paper aims to analyse the European Central Bank (ECB) monetary policy match to the euro area and its individual countries’ economic interests (2000–2012)
It is worth noting that the estimated rates of 2007 trend dynamics partially justify the need for an expansionary monetary policy, while the general trend shows that the 2011–2012 rates were optimal and consistent with the euro area (EA) requirements
Summary
Before creating the euro area, there had been a number of economic and political discussions about the euro zone as a monetary union to match with its individual member states’ economic interests. The theoretical basis for creating the euro area was the optimal currency area (OCA) theory (Mundell, 1961, 1973), but it did not analyse the broader theory of the Central Bank activities in this new area. Critics (Krugman, 1993) believed that the national currencies disappearance could lead to bigger differences (as a result of higher specialization), and the risk of asymmetry in the new formation may increase. This criticism was ignored or even ridiculed After the first few years’ data and the project’s success, the critical opinions were virtually eliminated
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