Economics at your fingertips  

Threshold effects of financial stress on monetary policy rules: A panel data analysis

Danvee Floro and Björn van Roye

International Review of Economics & Finance, 2017, vol. 51, issue C, 599-620

Abstract: This study tests for the state-dependent response of monetary policy to increases in overall financial stress and financial sector-specific stress across a panel of advanced and emerging economy countries. We use a factor-augmented dynamic panel threshold regression model with (estimated) common error components to deal with cross-sectional dependence. We find strong evidence of advanced economy countries' aggressive monetary policy loosening in response to stock market and banking stress but only in times of high financial market volatility. By comparison, evidence of threshold effects of financial stress is generally weak for emerging market countries’ interest rate decisions.

Keywords: Financial stress; Monetary policy; Factor-augmented dynamic panel threshold regression; Cross-sectional dependence (search for similar items in EconPapers)
JEL-codes: E31 E44 E52 E58 C23 C24 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Threshold effects of financial stress on monetary policy rules: a panel data analysis (2017) Downloads
Working Paper: Threshold Effects of Financial Stress on Monetary Policy Rules: A Panel Data Analysis (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

DOI: 10.1016/j.iref.2017.07.023

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2020-02-15
Handle: RePEc:eee:reveco:v:51:y:2017:i:c:p:599-620