This study examines
the effectiveness of the monetary policy of the European Central Bank (ECB) in
managing inflation in the Euro Area compared to the independent monetary policy
of seven European Union Member States outside the Economic and Monetary Union
(EMU). It highlights the complexity of applying a centralized one size fits all
approach to diverse economies, highlighting the differences between core and
peripheral EMU countries and the unique challenges faced by non-Eurozone
countries. In addition, the study includes an analysis of the stress indicator,
defined as the difference between the ECB’s main refinancing rate and the
optimal rate of the central bank of non-EMU countries. This indicator reflects
whether the ECB’s monetary policy has been too loose or too restrictive
relative to the needs of non-Euro Area countries. The stress indicator is
further analyzed during key economic periods, including past crises, to assess
its volatility. Using econometric models, the study assesses the impact of optimal
interest rates and macroeconomic indicators on inflation in three groups: the
EU as a whole, Euro Area and non-Euro Area countries. This multi-faceted
approach provides valuable insights into the varying effectiveness of
centralized and independent monetary policies in addressing inflation
challenges.
