European central bank policy-making and the financial crisis

We estimated Taylor rule models for the euro area using Consensus Economics forecasts of inflation and output growth for the period 1998.6-2010.8. We first examined whether the recent financial crisis has affected European Central Bank (ECB) policies. Our results indicate that the ECB puts stronger emphasis on maintaining price stability than the earlier point estimates suggested. Next, we analysed whether economic developments in individual euro area countries affect ECB decisions. Despite the diverging economic developments in the countries in the euro area, notably during the recent financial crisis, we did not find support for the view that policy decisions have been influenced by regional developments.