All Rights Reserved
AccessEcon LLC 2006, 2008.
Powered by MinhViet JSC
ralph lauren polo

 
Claudiu T Albulescu, Daniel Goyeau and Dominique Pépin
 
''Financial instability and ECB monetary policy''
( 2013, Vol. 33 No.1 )
 
 
This paper proposes an assessment of the monetary policy performed by the European Central Bank (ECB) and, more specifically this paper investigates to what extent the ECB monetary policy decisions were guided by financial instability signals. Our assessment is achieved by estimating a Taylor's rule, augmented by financial instability aggregate indicators. This estimate enables us, on the one hand, to compare the fitted model predictions against the observed interest rate and, on the other hand, to decompose the setup of the key rate based on these different determinants. Using a sample of data related to the Euro area, we show that financial and banking instability impact on the key interest rate setup. Consideration of instability indicators brings forward a clear improvement of the Taylor's rule, mainly for the second period of the sample. This is because, at the beginning of the ECB, instability counted for one third of the explanation of the interest rate rule, and over the recent period (starting with the last quarter of 2005, up to 2009), for more than 54%.
 
 
Keywords: monetary policy, ECB, Taylor's rule, financial instability
JEL: E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General
E4 - Money and Interest Rates: General
 
Manuscript Received : Dec 06 2012 Manuscript Accepted : Feb 15 2013

  This abstract has been downloaded 673 times                The Full PDF of this paper has been downloaded 103165 times