Herding Behaviour of Central Banks: Following the Fed and ECB

  • Jakub Bureš
Keywords: Interest rates, Taylor rule, Central banks, Currency wa


I apply interest rate rules, especially the Taylor rule, to identify basic determinants of the central banks' decision-making process. The results confirmed herding behaviour related to the central bank financial assets and its economic power in the US and Eurozone. The conclusions are discussed in relation to the exchange rate movements and capital flows. The empirical strategy reflects different lag structure and employs autoregressive distributed lag models.


Ahamed, L. 2009. Lords of Finance: The Bankers Who Broke the World. WindMill Books. ISBN 978-0-09-949308-2.

Belke, A. and Göcke, M. 2003. Monetary Policy (In-) Effectiveness under Uncertainty – Some Normative Implications for European Monetary Policy. Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 223/2003, Department of Economics, University of Hohenheim, Germany.

Belke, A. and Gros, D. 2003. Asymmetries in Trans-Atlantic Monetary Policy Relationship: Does the ECB Follow the Fed? [online]. CESifo Working Paper No. 1428. Available at: http://www.cesifo-group.de/DocDL/cesifo1_wp1428.pdf. [Accessed 2016, October 16].

Belke, A. and Gros, D. 2002. Designing EU–US Atlantic Monetary Relations: Exchange Rate Variability and Labour Markets. World Economy, 25 (6), 789–813.

Blancheton, B. 2016. Central Bank Independence in a Historical Perspective: Myth, Lessons and a New Model. Economic Modelling, 52 (A), 101–107.

Brown, G. 2010. Beyond the Crash: Overcoming the First Crisis of Globalisation. Simon & Schuster. ISBN 978-0-85720-285-7.

Darvas, Z. and Pisani-Ferry, J. 2010. The Threat of “Currency Wars”: a European Perspective. Bruegel Policy Contribution 2010/12.

Klose, J. 2014. Determining Structural Breaks in Central Bank Reaction Functions of the Financial Crisis. The Journal of Economic Asymmetries, 11, 78–90.

Klose, J. 2016. Country Differences in the ECB Monetary Reaction Function. The Journal of Economic Asymmetries, 14 (B), 157–167.

Kohn, D. 2010. Benefits and Limitations of Taylor Rule. Mostly Economics. [online]. Available at: https://mostlyeconomics.wordpress.com/2010/01/20/benefits-and-limitations-of-taylor-rule/. [Accessed 2016, October 16].

Pohorský, J. 2011. Taylorovo pravidlo a finanční krize. [online]. (Bachelor thesis.) Available at: https://is.muni.cz/th/322907/esf_b/Bakalarska_prace_-_Pohorsky_Josef.docx. [Accessed 2016, October 16].

Reinhart, C. M. and Rogoff, K. S. 2010. This Time Is Different: Eight Centuries of Financial Folly. Princeton University Press. ISBN 0-19-926584-4.

Sánchez, M. 2005. The Link Between Interest Rates and Exchange Rates: Do Contractionary Depreciations Make a Difference? [online]. European Central Bank Working Paper No. 548. Available at: http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp548.pdf?3580ef9984c1f243be0de10811e5e5ef. [Accessed 2016, October 29].

Taylor, J. B. 1993. Discretion Versus Policy Rules in Practice. Carnegie-Rochester Conference Series on Public Policy, 39, 195–214.

Taylor, J. B. 2013. The Effectiveness of Central Bank Independence Versus Policy Rules. SIEPR Discussion Paper No. 12-009.

Troy, D. and Leeper, E. M. 2007. Generalizing the Taylor Principle. American Economic Review, 97 (3), 607–635.

Wypłosz, C. 2001. The Fed and the ECB. Briefing Note to the Committee for Economic and Monetary Affairs of the European Parliament, Brussels.