Implications of the design of monetary policy for financial stability

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Implications of the design of monetary policy for financial stability

Author Info

Alicia García Herrero (Banco de España)
Pedro del Río López (Banco de España)

Additional information is available for the following registered author(s):

Alicia Garcia Herrero

Abstract

This paper is a contribution to the literature on the factors behind financial stability, focusing on monetary policy design. In particular, it assesses empirically for a sample of 79 countries in the period 1970 to 2000 whether the choice of the central bank objectives and the monetary policy strategy affect financial stability. We find that focusing the central bank objectives on price stability reduces the likelihood of a banking crisis. This result is robust to several model specifications and groups of countries. As regards the monetary policy strategy, exchange rate targeting significantly reduces the likelihood of a banking crisis for some model specifications and, in particular, for the group of countries in transition.

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Paper provided by EconWPA in its series Macroeconomics with number 0304008.

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Length: 34 pages
Date of creation: 21 Apr 2003
Date of revision:
Handle: RePEc:wpa:wuwpma:0304008

Note: Type of Document - Acrobat PDF; prepared on PC; to print on HP; pages: 34 ; figures: included
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Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

This paper has been announced in the following NEP Reports:

NEP-AFR-2003-04-27 (Africa)
NEP-ALL-2003-04-27 (All new papers)
NEP-IFN-2003-04-27 (International Finance)
NEP-MAC-2003-04-27 (Macroeconomics)

References listed on IDEAS
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repec:fth:inadeb:318 is not listed on IDEAS
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Full references

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Donato Masciandaro & Marc Quintyn, 2008. "Institutions Matter: Financial Supervision Architecture, Central Bank and Path Dependence. General Trends and the South Eastern European Countries," Working Papers 89, Bank of Greece. [Downloadable!]
Lucía Cuadro Sáez & Sonsoles Gallego Herrero & Alicia García Herrero, 2003. "Why Do Countries Develop More Financially Than Others? The Role Of The Central Bank And Banking Supervision," Finance 0304006, EconWPA. [Downloadable!]

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