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  • Open Daily: 10am - 10pm
    Alley-side Pickup: 10am - 7pm

    3038 Hennepin Ave Minneapolis, MN
    612-822-4611

Open Daily: 10am - 10pm | Alley-side Pickup: 10am - 7pm
3038 Hennepin Ave Minneapolis, MN
612-822-4611
The Sub-Prime Crisis and UK Monetary Policy

The Sub-Prime Crisis and UK Monetary Policy

Martin, Christopher
Milas, Costas
International Journal of Central Banking

Paperback

General Political Science

ISBN10: 1249455731
ISBN13: 9781249455738
Publisher: Bibliogov
Published: Sep 20 2012
Pages: 30
Weight: 0.16
Height: 0.06 Width: 7.44 Depth: 9.69
Language: English
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.

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