Financial Stability and Monetary Policy
Christopher Martin () and
Costas Milas ()
No 05/10, Department of Economics Working Papers from University of Bath, Department of Economics
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 policymakersâ€™ 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.
Keywords: monetary policy; financial crisis (search for similar items in EconPapers)
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Working Paper: Financial Stability and Monetary Policy (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eid:wpaper:19328
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