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Financial Stability And Price Stability: An Empirical Analysis In Euro Area

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  • Cristi Spulbar

    (University of Craiova, Faculty of Economics and Business Administration)

  • Adriana Spinu

    (University of Craiova, Faculty of Economics and Business Administration)

  • Mihai Nitoi

    (University of Craiova, Faculty of Economics and Business Administration)

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    Abstract

    In this paper we study the relationship between price stability and financial stability. We try to determine whether asset prices are useful indicators for determining future inflation rates and we analyze the tensions in the interbank market during the last five years by means of a GARCH (1,1) model. The results show that the interest rate leads to a decrease in the inflation rate, while oil and real estate prices give a positive impulse. Before the crisis, Euribor-Eoniaswap spread had a low volatility. But the intervention of central banks by injecting liquidity into the banking system led to a considerable increase in its volatility. Another explanation for the evolution of this phenomenon is due to the loss of control by the ECB on the MBR and Eoniaswap spread.

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    Bibliographic Info

    Article provided by Constantin Brancusi University, Faculty of Economics in its journal Constatin Brancusi University of Targu Jiu Annals - Economy Series.

    Volume (Year): 4I (2012)
    Issue (Month): (December)
    Pages: 220-229

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    Handle: RePEc:cbu:jrnlec:y:2012:v:4i:p:220-229

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    Related research

    Keywords: financial stability; price stability; GARCH model; liquidity crisis; financial crisis; Taylor rule;

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    1. Shiratsuka, Shigenori, 1999. "Asset Price Fluctuation and Price Indices," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, Institute for Monetary and Economic Studies, Bank of Japan, vol. 17(3), pages 103-128, December.
    2. Christopher Kent & Philip Lowe, 1997. "Asset-price Bubbles and Monetary Policy," RBA Research Discussion Papers, Reserve Bank of Australia rdp9709, Reserve Bank of Australia.
    3. Jan Frait & Luboš Komárek & Zlatuše Komárková, 2011. "Monetary Policy in a Small Economy after Tsunami: A New Consensus on the Horizon?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, Charles University Prague, Faculty of Social Sciences, vol. 61(1), pages 5-33, January.
    4. Nicoletta Batini & Eugen Tereanu, 2010. "Inflation targeting during asset and commodity price booms," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 26(1), pages 15-35, Spring.
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