ECB Monetary Policy: “One Size Doesn’t Fit All” Problem and Its Impact on Credits Volume

• Název práce v češtině: Měnová politika ECB: Problém jednotné úrokové míry a její vliv na úvěrování v eurozóně
• Název v anglickém jazyce: ECB Monetary Policy: “One Size Doesn’t Fit All” Problem and Its Impact on Credits Volume
• Klíčová slova: Taylorovo pravidlo, jednotná měnová politika, eurozóna, úvěrový růst
• Klíčová slova anglicky: Taylor rule, single monetary policy, euro area, credit growth
• Akademický rok vypsání: 2012/2013
• Typ práce: diplomová práce
• Jazyk práce: angličtina
• Ústav: Institut ekonomických studií (23-IES)
• Vedoucí / školitel: PhDr. Jaromír Baxa, Ph.D.
• Řešitel: skrytý - zadáno vedoucím/školitelem
• Datum přihlášení: 31.05.2013
• Datum zadání: 31.05.2013
• Datum a čas obhajoby: 23.09.2014 10:00
• Místo konání obhajoby: IES
• Datum odevzdání elektronické podoby: 29.07.2014
• Datum proběhlé obhajoby: 23.09.2014
• Oponenti: doc. Bc. Jiří Novák, M.Sc., Ph.D.

Zásady pro vypracování

Hypotheses:
1. The actual interest rate set by the ECB is approximately in compliance with the Taylor rule suggestions
2. The ECB interest rate is the least suitable for PIIGS countries
3. The deviation of actual interest rate from theoretically suitable interest rate has a statistically significant impact on the volume of provided credits

Outline
1. Introduction
2. Review of the literature on the “One size doesn’t fit all” problem
3. Theoretical background – Taylor rule
4. Single interest rate of the ECB – development and compliance with Taylor rule
5. “One size doesn’t fit all” problem
To which countries does the ECB interest rate fit best and worst?
How big are the deviations of actual rate from theoretical rate?
How do the deviations develop over time?
6. Impact of the deviations on credits volume
Theoretical expectations about the impact
Econometric model and estimation based on real data
7. Possible solutions to the “One size doesn’t fit all” problem
8. Conclusions

Seznam odborné literatury

1. MOONS and A. VAN POECK. Does one size fit all? A Taylor-rule based analysis of monetary policy for current and future EMU members. Applied Economics. 2008, Vol. 40, Issue 2, s. 193-199. DOI: 10.1080/00036840600749763.
2. ARROYO, Jesús, Román MÍNGUEZ and Jorge UXÓ. How has European Monetary Policy Changed since the creation of the ECB? Estimation of Taylor Rule for the EMU (1991-2005). Institute of Social and Economic Analysis: Working paper 03/2006. 2006, 24 p.
3. NECHIO, Fernanda. Monetary Policy When One Size Does Not Fit All. FRBSF Economic Letter. June 13, 2011, Vol. 2011, Issue 18.
4. ELEFTHERIOU, Maria. On the robustness of the "Taylor rule" in the EMU: A few remarks on convergence. 25 June 2002, 45 p.
5. VAN POECK, André. One Money and Sixteen Needs: Has the ECB’s Monetary Policy Become More Balanced Towards the Needs of the Member States?. De Economist. 2010, Vol. 158, No. 1, s. 43-60. DOI: 10.1007/s10645-010-9135-4.
6. SAUER, Stephan and Jan-Egbert STURM. Using Taylor Rules to Understand European Central Bank Monetary Policy. German Economic Review. Aug2007, Vol. 8, Issue 3, p. 375-398.

Předběžná náplň práce v anglickém jazyce

The basic topic of my Master Thesis is so called “One size doesn’t fit all” problem in the eurozone and its impact on the volume of credits provided by banking sector. The monetary policy of the ECB has some drawbacks arising from the fact that the ECB sets one single interest rate for all euro area member countries. Since the member countries differ in many economic variables and characteristics, the single interest rate may not fit to all of them equally well. In my thesis I will investigate to which member states the ECB interest rate fits well, to which it fits worse and how it has developed over time. The theoretical background used for this analysis will be the Taylor rule, suggesting the optimal interest rate the central bank should set. Subsequent section will be focused on investigation of the impact of deviations between the actual interest rate and theoretically desired rate in member countries on the volume of provided credits. A statistically significant impact is expected, since for instance, too low interest rate should theoretically lead to credit expansion. Finally, in the last section I will try to outline some possible solutions to the “One size doesn’t fit all” problem.
The first parts of the thesis will be focused on the comparison between actual interest rates and theoretically optimal interest rates derived by the Taylor rule. In order to compute the Taylor rule interest rates for individual euro area member countries, I will use real data provided especially by the main international institutions (European Central Bank, International Monetary Fund, Eurostat etc.) and national central banks. To study the impact of the deviations of actual from theoretical rates, I will create an econometric model to estimate the parameters. Panel data will be used for the estimation, consisting of figures for all euro area member states from the euro introduction till today.