Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/102362
Authors: 
Käfer, Benjamin
Year of Publication: 
2014
Series/Report no.: 
Joint Discussion Paper Series in Economics 30-2014
Abstract: 
The question of whether central banks should bear responsibility for financial stability is still unan-swered. Regarding interest rate implementation, it is thus not clear if 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 developed 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 large 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.
Subjects: 
Taylor rule
financial stability
sovereign debt crisis
Eurozone heterogeneity
exchange rates
asset prices
credit spreads
JEL: 
E52
F33
F42
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.