The Taylor Rule and Financial Stability: A Literature Review with Application for the Eurozone
| Autor: | Benjamin Käfer |
|---|---|
| Rok vydání: | 2014 |
| Předmět: |
Macroeconomics
050208 finance media_common.quotation_subject 05 social sciences Stability (learning theory) jel:F42 Monetary economics jel:E52 Taylor rule financial stability sovereign debt crisis Eurozone heterogeneity exchange rates asset prices credit spreads jel:F33 Term (time) Interest rate Taylor rule Core (game theory) 0502 economics and business Economics Normative Asset (economics) 050207 economics General Economics Econometrics and Finance media_common European debt crisis |
| Popis: | The question whether central banks should bear responsibility for financial stability remains unanswered. In connection with the use of interest rates, it is therefore not clear whether and how the Taylor rule should be augmented by an additional financial stability term. This paper reviews the normative and positive literature on Taylor rules augmented with exchange rates, asset prices, credit, and spreads. These measures have evolved as common indicators of financial (in)stability in the Taylor rule literature. In addition, our own analysis describes the development of these indicators for the core and the periphery of the Eurozone. Given the high degree of heterogeneity between euro area countries, the conclusion here is that an interest rate reaction to instability by the European Central Bank would be inappropriate in times of crisis. However, this conclusion is somewhat weakened if there is no crisis. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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