Independent MP Research about the Eurosystem

The ECB has a scientific island position in the field of empirical research about the Eurosystem (ECB 2011a; ECB 2004; ECB 2015b; ECB 2015a). Its two-pillar approach (ECB 2011a; ECB 2004; ECB 2015b) tracks and researches the economic and monetary develop-ments, and several detailed reports, bulletins, ECB working paper series about MP, mone-tary and economic developments are released every year (ECB 2015a). However, due to its close relationships to authors and researchers, and due to its public relation strategy the ECB, like most other central banks staff, has to be considered as ‘completely biased to-wards its own short, medium and long-term objectives’. Central Banks or MFIs own re-search studies cannot be considered as independent or unbiased rere-search as principal agent problems arise (Ross 1973): Hence, all data and sources, reviews and bulletins, trends and coherencies must be independently re-elaborated. An external assessment of the ECB’s research was conducted only as ‘invited’ remittance work for the ECB (ECB 2015b).

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For example, the ECB has reviewed its own conduct of MPs since 1999 (ECB 2011a): it con-cludes its outstanding performance until today, despite all economic shocks. This research review is going to uncover the true performance on prices and GDP in an independent way.

The ECB also claims that there is ‘high confidence’, and that the markets have ‘faith in the ECBs determination’ to maintain price stability (ECB 2011a), in the medium term. However, the recent devaluation of the Euro against the Dollar has much increased the factor costs for import-sourcing industries and partly also for import-intense consumption. The need of the expanded asset purchase program (APP) and the Euro Crisis have also caused reasona-ble public doubts on the sustainability of the Eurosystem. Economic stabilization, job mar-ket trends, GDP and investment targets post FC are also ‘only insufficiently achieved’. Besides the overwhelming amount of own central bank research there is also some inde-pendent research: The majority of all comprehensive review works that systematically re-search monetary trends and developments in the EMU are only spanning data from 1980 till 2003 (Angeloni et al. 2001; Issing 2001; Ehrmann et al. 2001; Peersman & Smets 1999;

Cassola & Morana 2004; Faust et al. 2001; Gerlach & Svensson 2003; Ehrmann et al. 2003;

Peersman 2004; Clausen & Hayo 2005; Mojon et al. 2002; Chatelain et al. 2002; Gaspar et al. 2001; Angeloni & Ehrmann 2003; Sander & Kleimeier 2004; Aarle et al. 2003; Angeloni et al. 2003; Welfens 2001; Müller 2003; Cornelius et al. 2000; Meeusen 1999; Masson et al.

1997; De Haan 2005; Pelkmans 1998; etc.). Most are all published around the turning mil-lennium. The majority of reviews don’t cover the important recent trends in the EMU.

‘Biased’ publications associated with the ECB or ECB affiliated authors have revealed a de-cline in the money multiplier, an increase in the pass through spread, a one year delayed effect of interest rate changes on prices and economic activity, and a half year effect of a changed monetary base (Peersman 2011; ECB 2015b). Stylized facts in the euro area seem to resemble those of the US Federal Reserve System, such as aggregate monetary and real variables, and only some specific deviations in disaggregate loans and deposits are found (Giannone et al. 2012). Many ‘snapshots of ECB research’ exist that do not try to reveal causes or efficiencies but represent ‘detailed snapshots of trends’ (ECB 2015b; ECB 2015a).

There is one independent research review that also reviews the EMU but again only from a central bankers perspective (Cecchetti & Schoenholtz 2010): it separately discusses HICP, G-Bonds, GDP, yields, and current accounts trends. Additionally, only few independent books have been published about the topic: Although very interesting works, most of them clearly

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have a different focus than this analytical review here and only secondarily cover, review or analyze the main coherencies of the monetary trends and MP transmission in the EMU, nor do they try to evaluate the efficiency and effectiveness of MP, or do they try to reveal the functioning of the MS and its causes - the most important part of MP research (Görgens et al. 2014; Hamori & Hamori 2014; Mercier & Papadia 2011; Haan & Berger 2010; Beblavý et al. 2011; Tamakoshi & Hamori 2015; Ehrig et al. 2011; Tsionas 2014; Hummel 2013; Bitzenis et al. 2014). But they are informative of how MP is still taught today.

Several works have researched the influence of the US MP on EMU including its MTC mechanisms that act via the Fx rate, commodity prices, short-term interest rates, and the trade balance, among others (e.g. Boivin et al. 2008; or Neri & Nobili 2010). Until 2009, the pass-through (PT) has been correctly reported as inefficient (Blot 2013), but inefficiency was not correctly estimated, termed (‘a not complete PT’), nor concluded appropriately:

PT-inefficiency is of course much higher than the sole difference in PT - a very commonly found but unacceptable ‘scientific flaw’ of MP research: inefficiency always must be esti-mated or concluded. This most relevant study also correctly tests for homogeneity in the EMU and finds - also in line with this study - persisting sub-optimal features (Blot 2013).

Another study finds a significant relationship between the major monetary aggregates, in-terest rate and economic activity (Kapounek 2010). Furthermore, ‘money exogeneity’ could only be found for the monetary aggregate M1. ‘Money endogeneity’ hypothesis was veri-fied for money aggregate M2 and M3 (exogeneity was rejected at 5% significance level) (Kapounek 2010). The causality was proposed to stem from economic activity that pulls the money demand and then supply (Kapounek 2010). Some interesting but basic and prelimi-nary models are published for the Eurosystem, e.g. different types of New Keynesian DSGE models (Chen et al. 2014), but they also cannot provide a comprehensive understanding or modeling of the real developments and still serve only specific basic research questions.

In summary, an analytical review that provides the ‘big picture of the monetary euro area trends still remains much elusive. Most related books and reviews have only partially cov-ered the core trends, coherencies and topics, and only very few recent reviews exist, which are also only very scarcely empirical and mainly non-evaluative. Without any doubt, evalua-tion of the efficiency and effectiveness is the most important part of MP research, like for any other economic or business field. The much-biased MP research of today has led to huge risky knowledge gaps. This research review sets out to begin with closing these gaps.

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3 Materials and Methods

3.1 Materials, Data Sources, and Software