Read/download the whole book from here:

This paper provides evidence that, since the sign of Maastricht Treaty, euro-area
monetary authorities mainly follow a strong anti-inflationary policy. This policy can
be described by a threshold monetary policy rule model which allows for distinct
inflation policy regimes: a low and high. The paper finds that these authorities react
more strongly to positive deviations of inflation and/or output from their target levels
rather than to the negative. They do not seem to react at all to negative deviations of
output from its target level in the low-inflation regime. We argue that this behaviour
can be attributed to the attitude of the monetary authorities to build up credibility on
stabilizing inflationary expectations. To evaluate the policy implications of the above
euro-area monetary policy rule behaviour, the paper simulates a small New Keynesian
model. This exercise clearly indicates that the absence of reaction of the euro-area
monetary authorities to negative output gap when inflation is very low reduces their
efficiency on dampening the effects of negative demand shocks on the economy.
JEL Classification: E52, C13, C30
Keywords: Monetary policy, threshold models, regime-switching, generalized method
of moments, New Keynesian model
Acknowledgements: The authors would like to thank Heather Gibson, Alex
Michaelides, George Tavlas, as well as the participants at the seminar series of the
Bank of Greece for helpful comments on an earlier version of the paper. Thanassis
Kazanas also acknowledges financial support from the Bank of Greece for carrying
out this research. The views expressed do not necessarily reflect those of the Bank of

Kudos to Crossover for tweeting the book.