Financial Stability and Monetary Policy

Christopher Martin, Costas Milas

Research output: Working paper

1 Citation (Scopus)
153 Downloads (Pure)

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.
Original languageEnglish
Place of PublicationBath, U. K.
PublisherDepartment of Economics, University of Bath
Publication statusPublished - May 2010

Publication series

NameBath Economics Research Working Papers
No.05/10

Keywords

  • monetary policy
  • financial crisis

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  • Cite this

    Martin, C., & Milas, C. (2010). Financial Stability and Monetary Policy. (Bath Economics Research Working Papers; No. 05/10). Department of Economics, University of Bath.