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

We derive four sets of counterfactual national interest rate paths for the 17 Euro Area countries for the time period 1999 to 2012. They approximate desirable national interest rates countries would have liked to implement if they could still 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 rules according to their ability to aggregate the national counterfactual paths to the EONIA rate. In addition to previous literature we find that those mechanisms which care for countries who fare economically worse than the Euro Area average perform best.