ECB Monetary Policy Under the Rotational Voting Scheme: Do National Biases Exist?

This paper assesses the results that emerge when estimating Taylor reaction functions for the European Central Bank (ECB) with and without variables accounting for economic differences between member countries. These differences are incorporated into the model using standard deviations of fundamental variables and by creating separate measures of all variables using data only from the member countries voting at a given meeting. Since 2015 this voting body has changed monthly, and of interest is how differences between the subgroup and the larger group drive interest rate decisions. The results of this study indicate that a basic Taylor rule explains ECB behavior in the ways theory would suggest. The inclusion of the specific variables used in this study to an otherwise standard Taylor rule however does not lead to a better understanding of whether interest rates at the ECB are set with consideration of the economic disparities that exist within the Eurozone