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40 Years of Monetary Targets and Financial Crises in 20 OECD Countries

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Author Info
Álvaro Almeida () (Faculdade de Economia da Universidade do Porto)
Abstract

This paper examines differences in the stability of the foreign exchange, money, and stock markets, associated with the use of alternative monetary policy targets, based on data from a panel of 20 OECD countries, for the period 1961-2000. The main conclusion of the paper is that the choice of monetary policy target will significantly affect stability in financial markets. The use of inflation targets reduces the likelihood of crises in the foreign exchange and money markets (relative to any other monetary policy framework), suggesting that a central bank concerned with financial stability should adopt this framework. Results also suggest that exchange rate targeting frameworks tend to have higher likelihood of foreign exchange and money market crises, but multilateral exchange rate arrangements have lower likelihood of crises than unilateral pegs. The paper also includes a complete description of the monetary policy targets used in the countries analysed.

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Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 128.

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Length: 33 pages
Date of creation: Apr 2003
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Handle: RePEc:por:fepwps:128

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Keywords: monetary policy rules financial crises.

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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. Svensson, Lars E O, 1995. "The Swedish Experience of an Inflation Target," CEPR Discussion Papers 1103, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December. [Downloadable!] (restricted)
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  3. von Hagen, J, 1995. "Inflation and Monetary Targeting in Germany," Papers 03, American Institute for Contemporary German Studies-.
  4. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August. [Downloadable!] (restricted)
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  5. José Viñals & Charles Goodhart, 1994. "Strategy and Tactics of Monetary Policy: Examples from Europe and the Antipodes," FMG Special Papers sp61, Financial Markets Group. [Downloadable!] (restricted)
  6. Cottarelli, C. & Giannini, C., 1997. "Credibility without Rules? Monetary Frameworks in the Post-Bretton Woods Era," Papers 312, Banca Italia - Servizio di Studi.
  7. Charles A. E. Goodhart & Jose Vinals, 1994. "Strategy an tactics of monetary policy: examples from Europe and the Antipodes," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, pages 139-194. [Downloadable!]
  8. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December. [Downloadable!] (restricted)
  9. Guy Debelle & Glenn Stevens, 1995. "Monetary Policy Goals for Inflation in Australia," RBA Research Discussion Papers rdp9503, Reserve Bank of Australia. [Downloadable!]
  10. Charles Goodhart & José Viñals, 1994. "Strategy and Tactics of Monetary Policy: Examples from Europe and the Antipodes," Banco de España Working Papers 9425, Banco de España.
  11. Frederic S. Mishkin, 2000. "What should central banks do?," Review, Federal Reserve Bank of St. Louis, issue Dec, pages 1-14. [Downloadable!]
  12. Wasserfallen, Walter & Kursteiner, Guido, 1994. "Interest rates and exchange rates under money supply targets: The Swiss evidence," Journal of Monetary Economics, Elsevier, vol. 33(1), pages 201-230, February. [Downloadable!] (restricted)
  13. Charles Goodhart & José Viñals, 1994. "Strategy and Tactics of Monetary Policy: Examples from Europe and the Antipodes," Banco de España Working Papers 9425, Banco de España.
  14. Goodhart, Charles, 1989. "The Conduct of Monetary Policy," Economic Journal, Royal Economic Society, vol. 99(396), pages 293-346, June. [Downloadable!] (restricted)
  15. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June. [Downloadable!] (restricted)
  16. Lars E.O. Svensson, 2002. "What Is Wrong with Taylor Rules? Using Judgment in Monetary Policy through Targeting Rules," Working Papers 118, Princeton University, Department of Economics, Center for Economic Policy Studies.. [Downloadable!]
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  17. Bernanke, Ben S. & Mihov, Ilian, 1997. "What does the Bundesbank target?," European Economic Review, Elsevier, vol. 41(6), pages 1025-1053, June. [Downloadable!] (restricted)
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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. Pedro Cosme Costa Vieira, 2005. "Multi Product Market Equilibrium with Sequential Search," FEP Working Papers 166, Universidade do Porto, Faculdade de Economia do Porto. [Downloadable!]
  2. Rui Henrique Alves, 2004. "Europe: Looking for a New Model," FEP Working Papers 154, Universidade do Porto, Faculdade de Economia do Porto. [Downloadable!]
  3. Mário Rui Silva & Hermano Rodrigues, 2005. "Competitiveness and Public-Private Partnerships: Towards a More Decentralised Policy," FEP Working Papers 171, Universidade do Porto, Faculdade de Economia do Porto. [Downloadable!]
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  4. Pedro Cosme Costa Vieira, 2005. "The importance in the papers' impact of the number of pages and of co-authors - an empirical estimation with data from top ranking economic journals," FEP Working Papers 169, Universidade do Porto, Faculdade de Economia do Porto. [Downloadable!]
  5. Mário Rui Silva & Hermano Rodrigues, 2005. "Public-Private Partnerships and the Promotion of Collective Entrepreneurship," FEP Working Papers 172, Universidade do Porto, Faculdade de Economia do Porto. [Downloadable!]
  6. Cristina Barbot, 2004. "Low cost carriers, secondary airports and State aid: an economic assessment of the Charleroi affair," FEP Working Papers 159, Universidade do Porto, Faculdade de Economia do Porto. [Downloadable!]
  7. Filipe J. Sousa & Luis M. de Castro, 2004. "The strategic relevance of business relationships: a preliminary assessment," FEP Working Papers 163, Universidade do Porto, Faculdade de Economia do Porto. [Downloadable!]
  8. Rosa Forte, 2004. "The relationship between foreign direct investment and international trade. Substitution or complementarity? A survey," FEP Working Papers 140, Universidade do Porto, Faculdade de Economia do Porto. [Downloadable!]
  9. Jorge M. S. Valente, 2004. "Local and global dominance conditions for the weighted earliness scheduling problem with no idle time," FEP Working Papers 156, Universidade do Porto, Faculdade de Economia do Porto. [Downloadable!]
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