<< N°134
| N°134 | ||
| Issue Q2 2013 | ||
| Monetary policy and capital regulation in the US and Europe | ||
|
Ethan Cohen-Cole Jonathan Morse |
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| The Federal Reserve and the European Central Bank aggressively lowered interest rates during the recent crisis. Both actions were at odds with an anti-inflationary policy stance: in August 2007, inflation expectations were high, particularly in the United States. To explain these actions, we model an economy with a leveraged and regulated financial sector. We find optional Taylor rules using simulated GMM, and find rules consistent with a pro-inflationary reaction during financial crises and a standard output-inflation mandate for the central bank. Our results support procyclical regulation not because of adequacy concerns, but instead due to the impact on monetary policy. |
Abstract |
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| Monetary policy ; Bank regulation ; European Central Bank ; | Keywords | |
| E51 ; E58 ; G18 ; G28 ; | JEL classification | |
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