| The Sub-Prime Crisis and UK Monetary Policy Contributor(s): International Journal of Central Banking (Created by), Martin, Christopher (Author), Milas, Costas (Author) |
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ISBN: 1249455731 ISBN-13: 9781249455738 Publisher: Bibliogov OUR PRICE: $14.96 Product Type: Paperback Published: September 2012 |
| Additional Information |
| BISAC Categories: - Political Science |
| Physical Information: 0.06" H x 7.44" W x 9.69" (0.16 lbs) 30 pages |
| Descriptions, Reviews, Etc. |
| Publisher Description: The "sub-prime" crisis, which led to major turbulence in global financial markets beginning in mid-2007, has posed major challenges for monetary policymakers. We analyze the impact on monetary policy of the widening differential between policy rates and the three-month LIBOR rate, the benchmark for private-sector interest rates. We show that the optimal monetary policy rule should include the determinants of this differential, adding an extra layer of complexity to the problems facing policymakers. Our estimates reveal significant effects of risk and liquidity measures, suggesting that the widening differential between base rates and LIBOR was largely driven by a sharp increase in unsecured lending risk. We calculate that the crisis increased LIBOR by up to 60 basis points; in response, base rates fell further and more quickly than would otherwise have happened as policymakers sought to offset some of the contractionary effects of the sub-prime crisis. |
