Discussion paper

DP14090 Extracting Implicit Country Weights in ECB’s Monetary Policy

We propose a new method to estimate implicit country weights in the conduct of monetary policy by the European Central Bank (ECB). We estimate linear and non-linear Taylor
rules for 11 countries in the pre-Euro period, and then use the estimated response to produce counterfactual reference interest rates for those same countries in the post-Euro period.
The distance between counterfactual interest rates and the ECB’s reference rate provides
an estimate of a country’s implicit weight in Euro area monetary policy, in which the sum
of weights adds up to 1. The concept of monetary weight draws on that of monetary stress,
initially proposed by Clarida, Gal´ı, and Gertler, 1998, and further developed by Sturm and
Wollmersh¨auser, 2008. Our results show that Germany, Belgium and the Netherlands are
persistently assigned the largest weights, whereas Greece and Ireland secure the smallest.
This is especially so during the Sovereign Debt Crisis (SDC). The estimated country weights
increase with the degree of co-movement between each country’s and Germany’s business


Pereira, M and J Tavares (2019), ‘DP14090 Extracting Implicit Country Weights in ECB’s Monetary Policy‘, CEPR Discussion Paper No. 14090. CEPR Press, Paris & London. https://cepr.org/publications/dp14090