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Monetary policy's effects during the financial crises in Brazil and Korea

Listed author(s):
  • Charles Goodhart

    (Financial Markets Group, London School of Economics, UK)

  • Lavan Mahadeva

    (Bank of England, London, UK)

  • John Spicer

    (Europe Economics, London, UK)

This paper looks at the effect of monetary policy changes on asset prices in the foreign exchange and equity markets of Brazil and Korea. We were searching for evidence whether monetary policy tightening may have had (adverse) counterproductive effects on such asset markets. In common with other authors we find only weak or sporadic evidence for this hypothesis. Using a theoretical model of financial market imperfections, we show that the failure to find monetary policy effectiveness during a crisis can come about not only because of the endogeneity caused by a 'leaning against the wind' policy reaction but also, independently, if there are large and correlated risk premia in the financial markets in which interest rates and determined. Copyright © 2003 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/ijfe.200
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Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 8 (2003)
Issue (Month): 1 ()
Pages: 55-79

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Handle: RePEc:ijf:ijfiec:v:8:y:2003:i:1:p:55-79
DOI: 10.1002/ijfe.200
Contact details of provider: Web page: http://www.interscience.wiley.com/jpages/1076-9307/

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  1. Glick, R. & Moreno, R., 1999. "Money and Credit, Competitiveness, and Currency Crises in Asia and Latin America," Papers 99-01, Economisch Institut voor het Midden en Kleinbedrijf-.
  2. Bernanke, B. & Gertler, M. & Gilchrist, S., 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," Working Papers 98-03, C.V. Starr Center for Applied Economics, New York University.
  3. Michael J. Fleming & Eli M. Remolona, 1997. "What moves the bond market?," Research Paper 9706, Federal Reserve Bank of New York.
  4. McCallum, Bennett T., 1994. "A reconsideration of the uncovered interest parity relationship," Journal of Monetary Economics, Elsevier, vol. 33(1), pages 105-132, February.
  5. Boorman, Jack & Lane, Timothy & Schulze-Ghattas, Marianne & Bulir, Ales & Ghosh, Atish R. & Hamann, Javier & Mourmouras, Alex & Phillips, Steven, 2000. "Managing financial crises: the experience in East Asia," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 53(1), pages 1-67, December.
  6. Jesper Linde, 2001. "Testing for the Lucas Critique: A Quantitative Investigation," American Economic Review, American Economic Association, vol. 91(4), pages 986-1005, September.
  7. John Y. Campbell, 2000. "Asset Pricing at the Millennium," Harvard Institute of Economic Research Working Papers 1897, Harvard - Institute of Economic Research.
  8. Hutchison, M. & McDill, K., 1998. "Are All Banking Crises Alike? The Japanese Experience in International Comparison," Papers 99-02, Economisch Institut voor het Midden en Kleinbedrijf-.
  9. Reinhart, Carmen & Kaminsky, Graciela, 2001. "Bank Lending and Contagion: Evidence from the Asian Crisis," MPRA Paper 7580, University Library of Munich, Germany.
  10. Stiglitz, Joseph E & Weiss, Andrew, 1992. "Asymmetric Information in Credit Markets and Its Implications for Macro-economics," Oxford Economic Papers, Oxford University Press, vol. 44(4), pages 694-724, October.
  11. Rudebusch, G.D., 1996. "Do Measures of Monetary Policy in a VAR Make Sense?," Papers 269, Banca Italia - Servizio di Studi.
  12. Smith, Peter N & Wickens, Michael R., 2002. "Macroeconomic Sources of FOREX Risk," CEPR Discussion Papers 3148, C.E.P.R. Discussion Papers.
  13. Baillie, Richard T. & Osterberg, William P., 2000. "Deviations from daily uncovered interest rate parity and the role of intervention," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(3-4), pages 363-379, December.
  14. Andrew Berg, 1999. "The Asia Crisis; Causes, Policy Responses, and Outcomes," IMF Working Papers 99/138, .
  15. Favero, C. & Hendry, D., 1990. "Testing The Lucas Critique: A Review," Economics Series Working Papers 99101, University of Oxford, Department of Economics.
  16. Reinhart, Carmen & Calvo, Guillermo, 2000. "When Capital Inflows Come to a Sudden Stop: Consequences and Policy Options," MPRA Paper 6982, University Library of Munich, Germany.
  17. Kaminsky, Graciela L. & Schmukler, Sergio L., 1999. "What triggers market jitters?: A chronicle of the Asian crisis," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 537-560, August.
  18. Lutkepohl, Helmut, 1982. "Non-causality due to omitted variables," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 367-378, August.
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