Monetary policy and stock market volatility

Arbeitspapier

We estimate forward-looking interest rate reaction functions in the spirit of Taylor (1993) for four major central banks augmented by implicit volatilities of stock market indices to proxy financial market stress. Our results suggest that the Bank of England, the Federal Reserve Bank and the European Central Bank systematically respond to an increase of the implicit volatility by a decrease in the interest rate. We take our results as strong evidence that central banks use interest rates to stabilize financial markets in periods of financial market stress.

Object Details

• ISBN: 978-3-86558-977-4
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bundesbank Discussion Paper ; No. 45/2013

Classification and Topics

• Classification: Wirtschaft ; Interest Rates: Determination, Term Structure, and Effects ; Central Banks and Their Policies ; Asset Pricing; Trading Volume; Bond Interest Rates
• Subject: Monetary policy ; Taylor rule ; Asset prices

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bleich, Dirk ; Fendel, Ralf ; Rülke, Jan-Christoph
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/87722
• Last update: 10.03.2025, 11:45 AM CET