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Monetary policy's effects during the financial crises in Brazil and Korea

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Author Info
Charles Goodhart (Financial Markets Group, London School of Economics, UK)
Lavan Mahadeva (Bank of England, London, UK)
John Spicer (Europe Economics, London, UK)

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Abstract

This paper looks at the effect of monetary policy changes on asset prices in the foreign exchange and equity markets of Brazil and Korea. We were searching for evidence whether monetary policy tightening may have had (adverse) counterproductive effects on such asset markets. In common with other authors we find only weak or sporadic evidence for this hypothesis. Using a theoretical model of financial market imperfections, we show that the failure to find monetary policy effectiveness during a crisis can come about not only because of the endogeneity caused by a 'leaning against the wind' policy reaction but also, independently, if there are large and correlated risk premia in the financial markets in which interest rates and determined. Copyright © 2003 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/ijfe.200
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Publisher Info
Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 8 (2003)
Issue (Month): 1 ()
Pages: 55-79
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Handle: RePEc:ijf:ijfiec:v:8:y:2003:i:1:p:55-79

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  4. Rudebusch, Glenn D, 1998. "Do Measures of Monetary Policy in a VAR Make Sense?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 907-31, November.
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  5. Lutkepohl, Helmut, 1982. "Non-causality due to omitted variables," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 367-378, August. [Downloadable!] (restricted)
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  10. Kaminsky, Graciela L. & Schmukler, Sergio L., 1999. "What triggers market jitters?: A chronicle of the Asian crisis," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 537-560, August. [Downloadable!] (restricted)
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  11. Reinhart, Carmen & Calvo, Guillermo, 2000. "When Capital Inflows Come to a Sudden Stop: Consequences and Policy Options," MPRA Paper 6982, University Library of Munich, Germany. [Downloadable!]
  12. Reinhart, Carmen & Kaminsky, Graciela, 2001. "Bank Lending and Contagion: Evidence from the Asian Crisis," MPRA Paper 7580, University Library of Munich, Germany. [Downloadable!]
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  14. Stiglitz, Joseph E & Weiss, Andrew, 1992. "Asymmetric Information in Credit Markets and Its Implications for Macro-economics," Oxford Economic Papers, Oxford University Press, vol. 44(4), pages 694-724, October. [Downloadable!] (restricted)
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  16. Baillie, Richard T. & Osterberg, William P., 2000. "Deviations from daily uncovered interest rate parity and the role of intervention," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(3-4), pages 363-379, December. [Downloadable!] (restricted)
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