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40 Years of Monetary Targets and Financial Crises in 20 OECD Countries

  • Álvaro Almeida


    (Faculdade de Economia da Universidade do Porto)

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    This paper examines differences in the stability of the foreign exchange, money, and stock markets, associated with the use of alternative monetary policy targets, based on data from a panel of 20 OECD countries, for the period 1961-2000. The main conclusion of the paper is that the choice of monetary policy target will significantly affect stability in financial markets. The use of inflation targets reduces the likelihood of crises in the foreign exchange and money markets (relative to any other monetary policy framework), suggesting that a central bank concerned with financial stability should adopt this framework. Results also suggest that exchange rate targeting frameworks tend to have higher likelihood of foreign exchange and money market crises, but multilateral exchange rate arrangements have lower likelihood of crises than unilateral pegs. The paper also includes a complete description of the monetary policy targets used in the countries analysed.

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    Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 128.

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    Length: 33 pages
    Date of creation: Apr 2003
    Date of revision:
    Handle: RePEc:por:fepwps:128
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    1. 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.
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    7. Lars E. O. Svensson, 2003. "What Is Wrong with Taylor Rules? Using Judgment in Monetary Policy through Targeting Rules," Journal of Economic Literature, American Economic Association, vol. 41(2), pages 426-477, June.
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    22. Goodhart, Charles, 1989. "The Conduct of Monetary Policy," Economic Journal, Royal Economic Society, vol. 99(396), pages 293-346, June.
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