Estimating country weights in the ECB’s monetary policy setting

Abstract

We unveil the implicit countryweights in the ECB’s monetary policy conduct across a sample of 12 Eurozone member-states. Using linear and non-linear Taylor rules, as well as observed and simulated data, we produce counterfactual interest rate paths to assess the differential between observed interest rates and those assumed to have prevailed under autonomy. Then, the estimated weights are compared with the correlation of countries’ business cycles and aggregate disturbances overtime. Results show that Germany and Luxembourg persistently receive the biggest weight, while Greece and Ireland secure the smallest. Finally, findings also indicate that countries with a smaller weight are those least correlated with Germany.