TY - JOUR
T1 - Forecast targeting and financial stability: Evidence from the European Central Bank and Bank of England
AU - Curi, Claudia
AU - Murgia, Lucia Milena
PY - 2023/1
Y1 - 2023/1
N2 - This paper investigates whether financial markets stability matters in setting monetary policy in the case of the European Central Bank and Bank of England. We show that our Tri-mandate Taylor rule better explains the deviations of the observed policy rate from the implied interest rates for both central banks. The forward-looking version shows that the monetary policy conducted by the ECB is largely affected by the US financial market stability, while only the domestic financial market stability affects the BOE. Lastly, we show that the preferences of monetary policy makers have shifted in the aftermath of the 2008 financial crisis.
AB - This paper investigates whether financial markets stability matters in setting monetary policy in the case of the European Central Bank and Bank of England. We show that our Tri-mandate Taylor rule better explains the deviations of the observed policy rate from the implied interest rates for both central banks. The forward-looking version shows that the monetary policy conducted by the ECB is largely affected by the US financial market stability, while only the domestic financial market stability affects the BOE. Lastly, we show that the preferences of monetary policy makers have shifted in the aftermath of the 2008 financial crisis.
U2 - 10.1016/j.frl.2022.103486
DO - 10.1016/j.frl.2022.103486
M3 - Article
VL - 51
JO - Finance Research Letters
JF - Finance Research Letters
SN - 1544-6123
M1 - 103486
ER -