The British Opt-out from the European Monetary Union: Empirical Evidence from Monetary Policy Rules
D'Addona StefanoMusumeci Ilaria
CEIS Research Paper
We analyze the current state of monetary integration in Europe, focusing on the United Kingdom’s position regarding the European Monetary Union (EMU). The interest rate decisions of the European Central Bank and the Bank of England are compared through different specifications of the Taylor rule. Comparison of the monetary conduct of these two institutions provides useful guidance in identifying the differences that the British Government claims motivating its refusal to join the EMU. Testing for forward-looking behavior and possible asymmetries in policy responses, we show evidence supporting the opt-out decision taken by the British Government.
Keywords: Taylor rule; European monetary integration; Regime switching models; Interest rate smoothing
JEL codes: E32, E52, E38
Date: Monday, March 26, 2012
Revision Date: Monday, March 26, 2012