US – euro area interdependence in monetary policy: Does the ECB follow the Fed?

The sub-prime crisis since August 2007 has shown how interdependent the US and the euro area economies and financial markets are. As the European business cycle has often lagged its US counterpart, it should not be surprising that ECB action often comes later than Fed action. However, this should not be interpreted as the ECB being dependent on the Fed. In this paper we analyse key channels of transmission: business cycle, central bank rates, market interest rates, commodity prices, asset prices and the exchange rate.