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A Peer-reviewed scientific articles/A1 Journal article (refereed), original research
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Financial shocks, financial stability, and optimal Taylor rules, Journal of Macroeconomics December (2017). Verona, Fabio; Martins, Manuel M.F.; Drumond, Inês

Category A Peer-reviewed scientific articles
Sub-category A1 Journal article (refereed), original research
auki Internal authors
All authors as text Verona, Fabio; Martins, Manuel M.F.; Drumond, Inês 
Number of authors
Status Published
Year of publication 2017 
Date 22.04.2017 
Name of article Financial shocks, financial stability, and optimal Taylor rules 
Name of journal Journal of Macroeconomics
Volume of issue 54, Part B 
Number of issue December 
Pages 1339-1351 
Abstract We assess the performance of optimal Taylor-type interest rate rules, with and without reaction to financial variables, in stabilizing an economy following financial shocks. The analysis is conducted in a DSGE model with loan and bond markets, each featuring financial frictions. This allows for a wide set of financial shocks and transmission mechanisms and can be calibrated to match the bond-to-bank finance ratio featured in the US financial system. Overall, we find that monetary policy that reacts to credit growth, a form of the so-called “leaning against the wind”, improves the ability of the central bank to achieve its mandate in the wake of financial shocks. The specific policy implications depend partly on the origin and the persistence of the financial shock, but overall not on the assignment of a mandate for financial stability in the central bank’s objective function.
Free text descriptor in Finnish rahoitusmarkkinat; häiriöt; vakaus; rahapolitiikka; DSGE; mallit; luotot; joukkovelkakirjat; 
Free text descriptor in English Financial shocks; Financial stability; Optimal Taylor rules; DSGE model; Bond market; Loan market 
JEL-codes E32; E44; E52 
ISSN / e-ISSN 0164-0704 
auki Internet addresses
Additional information Available online 22 April 2017.
Notes BoF DP 21/2014 

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