Zero lower bound, ECB interest rate policy and the financial crisis

We explore whether the ECB's interest rate setting behaviour changed during the financial crisis by estimating reaction functions over the period 1999-2010, allowing for a smooth transition from one set of parameters to another. The estimates show a swift change in the months following the collapse of Lehman brothers. The ECB appears to have cut rates more aggressively than expected solely on the basis of the worsening of macroeconomic conditions, consistent with the theoretical literature on optimal monetary policy in the vicinity of the zero bound.