Financial Stability and Monetary Policy


Martin, C. and Milas, C., 2010. Financial Stability and Monetary Policy. Working Paper. Bath, U. K.: Department of Economics, University of Bath. (Bath Economics Research Working Papers; 05/10)

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    We argue that although UK monetary policy can be described using a Taylor rule in 1992- 2007, this rule fails during the recent financial crisis. We interpret this as reflecting a change in policymakers’ preferences to give priority to stabilising the financial system. Developing a model of optimal monetary policy with preference shifts, we show this provides a superior empirical model over crisis and pre-crisis periods. We find no response of interest rates to inflation during the financial crisis, possibly implying that the UK abandoned inflation targeting during the financial crisis.


    Item Type Reports/Papers (Working Paper)
    CreatorsMartin, C.and Milas, C.
    Uncontrolled Keywordsmonetary policy,financial crisis
    DepartmentsFaculty of Humanities & Social Sciences > Economics
    Research CentresBath Economics Research
    ID Code19328


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