Essays on Central Bank credibility and monetary policy predictability

Abstract

This thesis contributes to the literature through an empirical analysis of the first decade of single European monetary policy within a real-time approach and offers new specifications of the policy reaction function of Central Banks based on a novel econometric modeling technique. The results of the thesis show that the policy interest rate of the European Central Bank (ECB) has been broadly well predicted by the market participants. Second, there is evidence that the ECB’s monetary policy has switched between a normal regime where the Central Bank focuses on its price stability commitment and a crisis regime where it puts a higher emphasis on stabilizing the economic outlook. Finally, the semi-parametric specifications of the policy reaction function permit to better predict the actual policy rate of several OECD Central Banks than the standard linear Taylor Rule and the policy rule with interest rate smoothing in the medium and longer terms.