Paper #922

Title:

Monetary policy in the Euro area: Lessons from 5 years of ECB and implications for Turkey

Authors:

Fabio Canova and Carlo Favero

Date:

March 2005

Abstract:

We examine monetary policy in the Euro area from both theoretical and empirical perspectives. We discuss what theory tells us the strategy of Central banks should be and contrasts it with the one employed by the ECB. We review accomplishments (and failures) of monetary policy in the Euro area and suggest changes that would increase the correlation between words and actions; streamline the understanding that markets have of the policy process; and anchor expectation formation more strongly. We examine the transmission of monetary policy shocks in the Euro area and in some potential member countries and try to infer the likely effects occurring when Turkey joins the EU first and the Euro area later. Much of the analysis here warns against having too high expectations of the economic gains that membership to the EU and Euro club will produce.

Keywords:

Pillars, Communication, Transmission, EU newcomers

JEL codes:

C11, E12, E32, E62

Area of Research:

Macroeconomics and International Economics

Published in:

Bacsi, E., Togan, S., and Von Hagen, J. (eds.) 2005, Macroeconomic Policies for EU Accession

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