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Asset Prices as Indicators of Euro Area Monetary Policy: An Empirical Assessment of Their Role in a Taylor Rule

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  • Pierre Siklos

    ()

  • Martin Bohl

    ()

Abstract

This paper estimates forward-looking and forecast-based Taylor rules for France, Germany, Italy, and the euro area. Performing extensive tests for over-identifying restrictions and instrument relevance, we find that asset prices can be highly relevant as instruments in policy rules. While asset prices improve Taylor rule estimates, different assets prove most relevant across countries and this result could be seen as complicating the tasks of the European Central Bank. Encompassing tests show that forecast-based outperform forward-looking Taylor rules. A policy implication is that central banks ought to release their own forecasts and the basis upon which they are generated.

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File URL: http://hdl.handle.net/10.1007/s11079-007-9063-3
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Bibliographic Info

Article provided by Springer in its journal Open Economies Review.

Volume (Year): 20 (2009)
Issue (Month): 1 (February)
Pages: 39-59

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Handle: RePEc:kap:openec:v:20:y:2009:i:1:p:39-59

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Web page: http://www.springerlink.com/link.asp?id=100323

Related research

Keywords: Monetary policy reaction functions; Asset prices; Instruments; European Central Bank; E52; E58; C52;

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References

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Citations

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Cited by:
  1. Pierre L. Siklos & Diana N. Weymark, 2011. "Data Revisions, Gradualism, and US Inflation Pressure in Real Time," Vanderbilt University Department of Economics Working Papers 1110, Vanderbilt University Department of Economics.
  2. Andrew Hughes Hallett & Jan Libich & Petr Stehlik, 2009. "Financial Instability Prevention," CAMA Working Papers 2009-14, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  3. Andrew Hughes Hallett & Jan Libich & Petr Stehlík, 2011. "Macroprudential Policies and Financial Stability," The Economic Record, The Economic Society of Australia, vol. 87(277), pages 318-334, 06.
  4. Botzen, W.J. Wouter & Marey, Philip S., 2010. "Did the ECB respond to the stock market before the crisis?," Journal of Policy Modeling, Elsevier, vol. 32(3), pages 303-322, May.
  5. Matthias Neuenkirch & Pierre Siklos, 2011. "What’s in a Second Opinion? Shadowing the ECB and the Bank of England," MAGKS Papers on Economics 201131, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  6. Hamza Bennani, 2013. "Does the ECB consider the persistence of inflation differentials?," Economics Bulletin, AccessEcon, vol. 33(3), pages 2129-2139.
  7. Andrew Swiston, 2011. "Official Dollarization As a Monetary Regime," IMF Working Papers 11/129, International Monetary Fund.
  8. Hamza Bennani, 2012. "National influences inside the ECB: an assessment from central bankers' statements," Working Papers hal-00992646, HAL.
  9. Richard C.K. Burdekin & King Banaian & Mark Hallerberg & Pierre L. Siklos, 2011. "Fiscal and monetary institutions and policies: onward and upward?," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 3(4), pages 340-354, November.
  10. Pierre L. Siklos, 2009. "As Good As It Gets? The International Dimension to Canada's Monetary Policy Strategy Choices," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 292, July.

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