We set 𝜌 = 0.8, 𝜙𝑟 = 1, 𝜙𝜋 = 1.5, and 𝜙𝑦 = 0.5. We also assume perfect foresight, so that 𝐸(𝜋𝑡+1 ) = 𝜋𝑡+1 , while the target rate of inflation is considered to be constant at 𝜋∗ = 2. An important alternative benchmark is to assess likely macroeconomic outcomes during this period had the monetary union not been established.
12 To this end, some researchers have run Taylor-type rules to capture plausible paths for national interest rates in this alternative world (Ahrend et al 2008, Taylor 2008). Figure 4 shows the hypothetical national interest rates for selected member countries over 1999-2009.