Financial crises and monetary policy

evidence from the UK

Christopher Martin, Costas Milas

Research output: Contribution to journalArticle

20 Citations (Scopus)
168 Downloads (Pure)

Abstract

We analyse UK monetary policy using monthly data for 1992-2010. We have two main findings. First, the Taylor rule breaks down after 2007 as the estimated response to inflation falls markedly and becomes insignificant. Second, policy is best described as a weighted average of a "financial crisis" regime in which policy rates respond strongly to financial stress and a "no-crisis" Taylor rule regime. Our analysis provides a clear explanation for the deep cuts in policy rates beginning in late 2008 and highlights the dilemma faced by policymakers in 2010-11.
Original languageEnglish
Pages (from-to)654-661
JournalJournal of Financial Stability
Volume9
Issue number4
Early online date5 Sep 2012
DOIs
Publication statusPublished - Dec 2013

Fingerprint

Financial crisis
Monetary policy
Taylor rule
Inflation
Politicians
Breakdown

Cite this

Financial crises and monetary policy : evidence from the UK. / Martin, Christopher; Milas, Costas.

In: Journal of Financial Stability, Vol. 9, No. 4, 12.2013, p. 654-661.

Research output: Contribution to journalArticle

@article{810fb996c76f4c8cbc9a200cefe3c572,
title = "Financial crises and monetary policy: evidence from the UK",
abstract = "We analyse UK monetary policy using monthly data for 1992-2010. We have two main findings. First, the Taylor rule breaks down after 2007 as the estimated response to inflation falls markedly and becomes insignificant. Second, policy is best described as a weighted average of a {"}financial crisis{"} regime in which policy rates respond strongly to financial stress and a {"}no-crisis{"} Taylor rule regime. Our analysis provides a clear explanation for the deep cuts in policy rates beginning in late 2008 and highlights the dilemma faced by policymakers in 2010-11.",
author = "Christopher Martin and Costas Milas",
year = "2013",
month = "12",
doi = "10.1016/j.jfs.2012.08.002",
language = "English",
volume = "9",
pages = "654--661",
journal = "Journal of Financial Stability",
issn = "1572-3089",
publisher = "Elsevier",
number = "4",

}

TY - JOUR

T1 - Financial crises and monetary policy

T2 - evidence from the UK

AU - Martin, Christopher

AU - Milas, Costas

PY - 2013/12

Y1 - 2013/12

N2 - We analyse UK monetary policy using monthly data for 1992-2010. We have two main findings. First, the Taylor rule breaks down after 2007 as the estimated response to inflation falls markedly and becomes insignificant. Second, policy is best described as a weighted average of a "financial crisis" regime in which policy rates respond strongly to financial stress and a "no-crisis" Taylor rule regime. Our analysis provides a clear explanation for the deep cuts in policy rates beginning in late 2008 and highlights the dilemma faced by policymakers in 2010-11.

AB - We analyse UK monetary policy using monthly data for 1992-2010. We have two main findings. First, the Taylor rule breaks down after 2007 as the estimated response to inflation falls markedly and becomes insignificant. Second, policy is best described as a weighted average of a "financial crisis" regime in which policy rates respond strongly to financial stress and a "no-crisis" Taylor rule regime. Our analysis provides a clear explanation for the deep cuts in policy rates beginning in late 2008 and highlights the dilemma faced by policymakers in 2010-11.

UR - http://www.scopus.com/inward/record.url?scp=84867235486&partnerID=8YFLogxK

UR - http://dx.doi.org/10.1016/j.jfs.2012.08.002

U2 - 10.1016/j.jfs.2012.08.002

DO - 10.1016/j.jfs.2012.08.002

M3 - Article

VL - 9

SP - 654

EP - 661

JO - Journal of Financial Stability

JF - Journal of Financial Stability

SN - 1572-3089

IS - 4

ER -