ECB rate setting analysed
This paper, published by the Institute for Monetary and Financial Stability, uses the ordered-probit technique and variables noted in the European Central Bank's (ECB's) Monthly Bulletin to investigate how the central bank sets rates.
The results demonstrate that policy reacts to the state of the real economy, M3 growth and exchange rate changes, but not to inflation. The paper claims that the ECB has not reacted to inflation shocks because they were seen as temporary, while policy responses to
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