Monetary ease: A factor behind financial crises? Some evidence from OECD countries
This paper addresses the question of whether and how easy monetary policy may lead to excesses in financial and real asset markets and ultimately result in financial dislocation. It presents evidence suggesting that periods when short-term interest rates were persistently and significantly below what Taylor rules would prescribe are correlated with increases in asset prices, especially as regards housing, though no systematic effects are identified on equity markets. Significant asset price increases, however, can also occur when interest rates are in line with Taylor rules, possibly associated with periods of financial deregulation and/or innovation. Finding also some support for a link of countries' pre-crisis monetary stance with the extent to which their financial sectors were hit during the recent crisis, the paper argues that accommodating monetary policy over the period 2002-2005, probably in combination with rapid financial market innovation, would, in retrospect, seem to have been among the factors behind the run-up in asset prices and financial imbalances - the (partial) unwinding of which helped trigger the recent financial market crisis.
Volume (Year): 4 (2010)
Issue (Month): ()
|Contact details of provider:|| Postal: Kiellinie 66, D-24105 Kiel|
Phone: +49 431 8814-1
Fax: +49 431 8814528
Web page: http://www.economics-ejournal.org/
More information through EDIRC
References listed on IDEAS
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.:
- Stephen G. Cecchetti, 2008.
"Measuring the Macroeconomic Risks Posed by Asset Price Booms,"
NBER Chapters,in: Asset Prices and Monetary Policy, pages 9-43
National Bureau of Economic Research, Inc.
- Stephen G. Cecchetti, 2006. "Measuring the Macroeconomic Risks Posed by Asset Price Booms," NBER Working Papers 12542, National Bureau of Economic Research, Inc.
- John B. Taylor, 2007. "Housing and monetary policy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 463-476.
- John B. Taylor, 2007. "Housing and Monetary Policy," NBER Working Papers 13682, National Bureau of Economic Research, Inc.
- John Taylor, 2007. "Housing and Monetary Policy," Discussion Papers 07-003, Stanford Institute for Economic Policy Research.
- Boris Cournède & Rudiger Ahrend & Robert W. R. Price, 2008. "Have Long-term Financial Trends Changed the Transmission of Monetary Policy?," OECD Economics Department Working Papers 634, OECD Publishing.
- DETKEN Carsten & SMETS Frank, "undated". "Asset Price Booms and Monetary Policy," EcoMod2003 330700042, EcoMod.
- Detken, Carsten & Smets, Frank, 2004. "Asset price booms and monetary policy," Working Paper Series 364, European Central Bank.
- Nathalie Girouard & Mike Kennedy & Paul van den Noord & Christophe André, 2006. "Recent House Price Developments: The Role of Fundamentals," OECD Economics Department Working Papers 475, OECD Publishing.
- Edward Nelson, 2000. "UK monetary policy 1972-97: a guide using Taylor rules," Bank of England working papers 120, Bank of England.
- Nelson, Edward, 2001. "UK Monetary Policy 1972-97: A Guide Using Taylor Rules," CEPR Discussion Papers 2931, C.E.P.R. Discussion Papers.
- Ben S. Bernanke & Cara S. Lown, 1991. "The Credit Crunch," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 205-248.
- Peter Hoeller & David Rae, 2007. "Housing Markets and Adjustment in Monetary Union," OECD Economics Department Working Papers 550, OECD Publishing.
- Rudiger Ahrend & Boris Cournède & Robert W. R. Price, 2008. "Monetary Policy, Market Excesses and Financial Turmoil," OECD Economics Department Working Papers 597, OECD Publishing.
- Oecd, 2006. "Are House Prices Nearing a Peak?: A Probit Analysis for 17 OECD Countries," OECD Economics Department Working Papers 488, OECD Publishing.
- David Rae & Paul van den Noord, 2006. "Ireland's Housing Boom: What has Driven it and Have Prices Overshot?," OECD Economics Department Working Papers 492, OECD Publishing.
- Rudiger Ahrend & Jens Arnold & Fabrice Murtin, 2011. "Have more strictly regulated banking systems fared better during the recent financial crisis?," Applied Economics Letters, Taylor & Francis Journals, vol. 18(5), pages 399-403.
- Ahrend, Rudiger & Arnold, Jens & Murtin, Fabrice, 2009. "Have more strictly regulated banking systems fared better during the recent financial crisis?," MPRA Paper 20135, University Library of Munich, Germany.
- Abdul Abiad & Enrica Detragiache & Thierry Tressel, 2010. "A New Database of Financial Reforms," IMF Staff Papers, Palgrave Macmillan, vol. 57(2), pages 281-302, June.
- Enrica Detragiache & Abdul d Abiad & Thierry Tressel, 2008. "A New Database of Financial Reforms," IMF Working Papers 08/266, International Monetary Fund.
- Burkhard Drees & Ceyla Pazarbasioglu, 1995. "The Nordic Banking Crises; Pitfalls in Financial Liberalization?," IMF Working Papers 95/61, International Monetary Fund.
- Del Negro, Marco & Otrok, Christopher, 2007. "99 Luftballons: Monetary policy and the house price boom across U.S. states," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 1962-1985, October.
- Rudiger Ahrend & Jens Arnold & Fabrice Murtin, 2009. "Prudential Regulation and Competition in Financial Markets," OECD Economics Department Working Papers 735, OECD Publishing.
- Nigel Pain & Isabell Koske & Marte Sollie, 2006. "Globalisation and Inflation in the OECD Economies," OECD Economics Department Working Papers 524, OECD Publishing.
- 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.
- Rudiger Ahrend & Pietro Catte & Robert W. R. Price, 2006. "Factors Behind Low Long-Term Interest Rates," OECD Economics Department Working Papers 490, OECD Publishing. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:zbw:ifweej:201012. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.