Working Paper: CEPR ID: DP8346
Authors: Stefan Gerlach
Abstract: I estimate a reaction function for the ECB using an ordered logit model for the period 1999-2009. Allowing for a smooth transition from one set of parameters to another, I detect a rapid change in middle of 2008.
Keywords: ECB; Ordered Logit; Reaction Functions; Smooth Transition
JEL Codes: C2; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| ECB's concerns about reaching the zero lower bound (ZLB) (E52) | aggressive rate cuts (E52) |
| sharp cuts in the ECB's repo rate during the crisis (E52) | significant deterioration in macroeconomic conditions (E66) |
| sharp cuts in the ECB's repo rate during the crisis (E52) | shift in the ECB's reaction function (E52) |
| lagged repo rate (E43) | stronger influence during the crisis (H12) |
| money growth (M3) (E51) | increased importance during the crisis (H12) |
| timing of the shift in the reaction function around June 2008 (E39) | coinciding with significant market events (G14) |
| ECB's aggressive rate cuts (E52) | strategic adjustment to avoid the zero lower bound (E52) |
| changes in the ECB's reaction function (E52) | statistically significant (C12) |