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Financial Instability and Monetary Policy: The Swedish Evidence

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Author Info
Bergman, U. Michael () (Department of Economics, Lund University)
Hansen, Jan () (Research Department, Central Bank of Sweden)
Abstract

This paper examines the relationship between financial instability and monetary policy within the Swedish economy. Based on a standard VAR model of monetary policy extended to include measures of financial instability and credit expansions, we examine the interaction between monetary policy and financial stability. We find that both higher interest rates, higher prices and lending expansions contribute to financial instability. As the effects from price shocks are strong and persistent compared to other shocks, our conclusion is that we cannot reject that price stability and financial stability are mutually consistent goals for monetary policy.

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Publisher Info
Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 137.

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Length: 41 pages
Date of creation: 01 Jun 2002
Date of revision:
Handle: RePEc:hhs:rbnkwp:0137

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Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
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Related research
Keywords: Financial instability; monetary policy; VAR model; structural shocks;

Find related papers by JEL classification:
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March. [Downloadable!] (restricted)
  2. Michael D. Bordo & David C. Wheelock, 1998. "Price stability and financial stability: the historical record," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 41-62. [Downloadable!]
  3. Warne, A. & Bergman, M., 1993. "Money-Income Causality and the Neutrality of Money," Papers 557, Stockholm - International Economic Studies.
  4. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July. [Downloadable!] (restricted)
  5. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1998. "Monetary Policy Shocks: What Have We Learned and to What End?," NBER Working Papers 6400, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Marvin Goodfriend, 2001. "Financial stability, deflation, and monetary policy," Working Paper 01-01, Federal Reserve Bank of Richmond. [Downloadable!]
    Other versions:
  7. Bernanke, Ben & Gertler, Mark, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Working Papers 95-15, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
    Other versions:
  8. Bean, Charles, 1998. "Monetary Policy under EMU," Oxford Review of Economic Policy, Oxford University Press, vol. 14(3), pages 41-53, Autumn.
  9. Allen, Franklin & Gale, Douglas, 2000. "Bubbles and Crises," Economic Journal, Royal Economic Society, vol. 110(460), pages 236-55, January. [Downloadable!] (restricted)
  10. Ben Bernanke & Mark Gertler, 1999. "Monetary policy and asset price volatility," Proceedings, Federal Reserve Bank of Kansas City, pages 77-128. [Downloadable!]
    Other versions:
  11. Allen, Franklin & Gale, Douglas, 1999. "Bubbles, Crises, and Policy," Oxford Review of Economic Policy, Oxford University Press, vol. 15(3), pages 9-18, Autumn.
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hansen, Jan, 2003. "Financial Cycles and Bankruptcies in the Nordic Countries," Working Paper Series 149, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
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