Taylor Rules for the ECB using Consensus Data

We estimate Taylor rules for the euro area using Consensus expectations for inflation and output growth and we compare these estimates with more conventional specifications in which actual outcomes are used. According to the model with Consensus data, the ECB takes expected inflation and expected output growth into account in setting interest rates, while in the more conventional model specification the coefficient of inflation is not significantly different from zero. Only when using survey data we find that the ECB's policy has been stabilizing. Finally, using a framework suggested by English et al. (2003), we find support for both policy inertia and serially correlated errors in ECB Taylor rules.