The Monetary Policy of the ECB: A Robin Hood Approach?

We derive counterfactual national interest rate paths for the 17 Euro Area countries for the period 1999 to 2012 to approximate the interest rates countries would have implemented had they still been able to conduct independent monetary policy. We find that prior to the financial crisis the counterfactual interest rates for Germany trace the realized EONIA rate very closely, while monetary policy has been too loose especially for the southern European countries. This situation was inverted with the onset of the financial crisis. To shed light on the underlying decision rule of the ECB, we rank different mechanisms according to their ability to aggregate the national counterfactual paths to the EONIA rate. We find that mechanisms which focus on countries which fare economically worse than the Euro Area average explain the EONIA path best.