Financial Stability and Monetary Policy
AbstractWe argue that although UK monetary policy can be described using a Taylor rule in 1992-2007, this rule fails during the recent financial crisis. We interpret this as reflecting a change in policymakers’ preferences to give priority to stabilising the financial system. Developing a model of optimal monetary policy with preference shifts, we show this provides a superior empirical model over crisis and pre-crisis periods. We find no response of interest rates to inflation during the financial crisis, possibly implying that the UK abandoned inflation targeting during the financial crisis.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 12_10.
Date of creation: Jan 2010
Date of revision:
monetary policy; financial crisis;
Other versions of this item:
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-06-26 (All new papers)
- NEP-CBA-2010-06-26 (Central Banking)
- NEP-EEC-2010-06-26 (European Economics)
- NEP-MAC-2010-06-26 (Macroeconomics)
- NEP-MON-2010-06-26 (Monetary Economics)
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.:
- Richard Clarida & Jordi Galí & Mark Gertler, 1997.
"The science of monetary policy: A new Keynesian perspective,"
Economics Working Papers
356, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 1999.
- Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
- Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," NBER Working Papers 7147, National Bureau of Economic Research, Inc.
- Clarida, R. & Gali, J. & Gertler, M., 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Working Papers 99-13, C.V. Starr Center for Applied Economics, New York University.
- Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers 2139, C.E.P.R. Discussion Papers.
- François-Louis Michaud & Christian Upper, 2008. "What drives interbank rates? Evidence from the Libor panel," BIS Quarterly Review, Bank for International Settlements, March.
- Teranishi, Yuki, 2012.
"Credit spread and monetary policy,"
Elsevier, vol. 114(1), pages 26-28.
- Ravn, M.O. & Uhlig, H., 2002.
"On adjusting the Hodrick-Prescott Filter for the frequency of observations,"
Open Access publications from University College London
http://discovery.ucl.ac.u, University College London.
- Morten O. Ravn & Harald Uhlig, 2002. "On adjusting the Hodrick-Prescott filter for the frequency of observations," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 371-375.
- Martin, Christopher & Costas Milas, 2002.
"Modelling Monetary Policy: Inflation Targeting in Practice,"
Royal Economic Society Annual Conference 2002
137, Royal Economic Society.
- Christopher Martin & Costas Milas, 2004. "Modelling Monetary Policy: Inflation Targeting in Practice," Economica, London School of Economics and Political Science, vol. 71(281), pages 209-221, 05.
- Vasco Cúrdia & Michael Woodford, 2009.
"Credit spreads and monetary policy,"
385, Federal Reserve Bank of New York.
- Svensson, L-E-O, 1996.
"Inflation Forecast Targeting : Implementaing and Monitoring Inflation Targets,"
615, Stockholm - International Economic Studies.
- Svensson, Lars E. O., 1997. "Inflation forecast targeting: Implementing and monitoring inflation targets," European Economic Review, Elsevier, vol. 41(6), pages 1111-1146, June.
- Svensson, Lars E O, 1996. "Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets," CEPR Discussion Papers 1511, C.E.P.R. Discussion Papers.
- Lars E. O. Svensson, 1997. "Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets," NBER Working Papers 5797, National Bureau of Economic Research, Inc.
- Lars E O Svensson, 1996. "Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets," Bank of England working papers 56, Bank of England.
- Svensson, Lars E.O., 1997. "Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets," Seminar Papers 615, Stockholm University, Institute for International Economic Studies.
- Stephan Danninger & Irina Tytell & Ravi Balakrishnan & Selim Elekdag, 2009. "The Transmission of Financial Stress from Advanced to Emerging Economies," IMF Working Papers 09/133, International Monetary Fund.
- Alexander Mihailov, 2007.
"Does Instrument Independence Matter under the Constrained Discretionof an Inflation Targeting Goal? Lessons from UK Taylor Rule Empirics,"
Money Macro and Finance (MMF) Research Group Conference 2006
95, Money Macro and Finance Research Group.
- Alexander Mihailov, 2005. "Has More Independence Affected Bank of England's Reaction Function under Inflation Targeting? Lessons from Taylor Rule Empirics," Economics Discussion Papers 601, University of Essex, Department of Economics.
- Christopher Martin & Costas Milas, 2008.
"The Sub-Prime Crisis and UK Monetary Policy,"
Working Paper Series
31-08, The Rimini Centre for Economic Analysis, revised Jan 2008.
- Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
- Kasai, Ndahiriwe & Naraidoo, Ruthira, 2011. "Evaluating the forecasting performance of linear and nonlinear monetary policy rules for South Africa," MPRA Paper 40699, University Library of Munich, Germany.
- Ndahiriwe Kasaï & Ruthira Naraidoo, 2012. "Financial assets, linear and nonlinear policy rules: An in-sample assessment of the reaction function of the South African Reserve Bank," Journal of Economic Studies, Emerald Group Publishing, vol. 39(2), pages 161-177, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roberto Patuelli).
If references are entirely missing, you can add them using this form.