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Zero lower bound, ECB interest rate policy and the financial crisis

  • Stefan Gerlach
  • John Lewis

    ()

We explore whether the ECB’s interest rate setting behaviour changed during the financial crisis by estimating reaction functions over the period 1999–2010, allowing for a smooth transition from one set of parameters to another. The estimates show a swift change in the months following the collapse of Lehman brothers. The ECB appears to have cut rates more aggressively than expected solely on the basis of the worsening of macroeconomic conditions, consistent with the theoretical literature on optimal monetary policy in the vicinity of the zero bound. Copyright Springer-Verlag Berlin Heidelberg 2014

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File URL: http://hdl.handle.net/10.1007/s00181-013-0713-6
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Article provided by Springer in its journal Empirical Economics.

Volume (Year): 46 (2014)
Issue (Month): 3 (May)
Pages: 865-886

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Handle: RePEc:spr:empeco:v:46:y:2014:i:3:p:865-886
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  1. Gerlach, Stefan, 2011. "ECB repo rate setting during the financial crisis," Economics Letters, Elsevier, vol. 112(2), pages 186-188, August.
  2. Adam, Klaus & Billi, Roberto M., 2006. "Optimal Monetary Policy under Commitment with a Zero Bound on Nominal Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(7), pages 1877-1905, October.
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  6. Gerlach, Stefan, 2003. "Recession aversion, output and the Kydland-Prescott Barro-Gordon model," Economics Letters, Elsevier, vol. 81(3), pages 389-394, December.
  7. Carstensen, Kai, 2006. "Estimating the ECB policy reaction function," Munich Reprints in Economics 19941, University of Munich, Department of Economics.
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  15. Volker Wieland (Goethe University Frankfurt) & Günter Coenen (European Central Bank), 2004. "Exchange Rate Policy and the Zero Bound on Nominal Interest Rates," Computing in Economics and Finance 2004 65, Society for Computational Economics.
  16. Lawrence Summers, 1991. "Panel discussion: price stability ; How should long-term monetary policy be determined?," Proceedings, Federal Reserve Bank of Cleveland, pages 625-631.
  17. Reifschneider, David & Willams, John C, 2000. "Three Lessons for Monetary Policy in a Low-Inflation Era," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(4), pages 936-66, November.
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  20. Janko Gorter & Fauve Stolwijk & Jan Jacobs & Jakob de Haan, 2010. "ECB Policy Making and the Financial Crisis," DNB Working Papers 272, Netherlands Central Bank, Research Department.
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