This paper presents an account of the monetary policy stance for euro area countries from 1999 to the beginning of the crisis in 2008. The analysis starts with the derivation of a synthetic index measuring the average tightness of monetary policy across euro area members. The index is constructed using pseudo-Taylor residuals, obtained from an estimated monetary policy rule for the whole euro area and country specific fundamentals. This measure is then decomposed to disentangle the role of inflation and fundamental economic dynamics. Results suggest that there were significant differences in monetary policy stance across euro area members over the period considered. Such differences are primarily driven by wedges in price dynamics, most of which are disconnected from real economic activity.
JEL Codes: E52, E58, E61.
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