This paper extends the current literature which questions the stability of the monetary transmission mechanism, by using a Dynamic Factor Model with time-varying parameters, which allows fast and efficient inference based on hundreds of explanatory variables. Different specifications are...

We explore how the ECB sets interest rates in the context of policy reaction functions. Using both real-time and revised information, we consider linear and nonlinear policy functions in inflation, output and a measure of financial conditions. We find that amongst Taylor rule models, linear and...

This paper studies optimal real time monetary policy when the central bank takes the volatility of the output gap and inflation as proxy of the undistinguishable uncertainty on the exogenous disturbances and the parameters of its model. The paper shows that when the uncertainty surrounding a...

We present empirical evidence that the marked rise in liquidity in 2001-2007 was due to large and persistent current account deficits and loose monetary policy. If this increase in liquidity was a pre-condition for the financial crisis that began in July 2007, we can conclude that loose monetary...

We argue that although UK monetary policy can be described using a Taylor rule in 1992-2007, this rule fails during the recent financial crisis. We interpret this as reflecting a change in policymakers’ preferences to give priority to stabilising the financial system. Developing a model of...

We estimate a flexible non-linear monetary policy rule for the UK to examine the response of policymakers to the real exchange rate. We have three main findings. First, policymakers respond to real exchange rate misalignment rather than to the real exchange rate itself. Second, policymakers...

This paper investigates the evolution of monetary policy in the U.S. using a standard set of macroeconomic variables. Many recent papers have addressed the issue of whether the monetary transmission mechanism has changed (e.g. due to the Fed taking a more aggressive stance against ination) or...

This paper studies the transmission of monetary shocks to state unemployment rates, within a novel structural factor-augmented VAR framework with a timevarying propagation mechanism. We find evidence of large heterogeneity over time in the responses of state unemployment rates to monetary policy...

We analyse UK monetary policy using monthly data for 1992-2010. We have two main findings. First, the Taylor rule breaks down after 2007 as the estimated response to inflation falls markedly and becomes insignificant. Second, policy is best described as a weighted average of a “financial...