Research

Financial Stability and Monetary Policy


Reference:

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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    Official URL:

    http://www.bath.ac.uk/economics/research/working-papers

    Abstract

    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.

    Details

    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
    RefereedNo
    StatusUnpublished
    ID Code19328

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