Comparing the Taylor Rule to the European Central Bank interest rate on the main refinancing operations during the recent financial crisis
Teräs, Elisa (2015)
Teräs, Elisa
HAAGA-HELIA ammattikorkeakoulu
2015
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Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:amk-201504204555
https://urn.fi/URN:NBN:fi:amk-201504204555
Tiivistelmä
The monetary policy of the European Central Bank has been a topic of discussion recently due to introduction of the record low key interest rates. Especially since the European Central Bank has been conducting monetary policy for the Euro area only for 16 years. The Taylor Rule is a monetary policy rule for calculating what the interest rate should be, taken into account the prevalent economical conditions.
The primary objective of this Bachelor’s thesis is to calculate the interest rate given by the monetary policy rule called the Taylor Rule and compare the result to the European Central Bank’s interest rate on the main refinancing operations during the recent financial crisis.
The theoretical framework focuses on providing a sufficient background for the empirical part of the study. The theory part includes examination of monetary policy and monetary policy rules, a deeper look into the Taylor Rule and it concludes with theory about reasons for banking crises and the timeframe of the recent financial crisis.
The timeframe of the study is 2000-2014 with the study being conducted at the end of 2014 and during the spring of 2015. The empirical part of the study is done using quantitative methods.
The research reported in this thesis was able to answer the primary research question: how does the interest rate calculated using the Taylor Rule compare to the European Central Bank interest rate on the main refinancing operations? The research also provided answers to the secondary research questions on the accuracy and variation between the Taylor Rule and the ECB steering rate. The results show that the Taylor Rule follows the path of the European Central Bank’s steering rate and in most parts mimics the fluctuations in the European Central Bank’s steering rate, but the Taylor Rule has been more volatile.
The primary objective of this Bachelor’s thesis is to calculate the interest rate given by the monetary policy rule called the Taylor Rule and compare the result to the European Central Bank’s interest rate on the main refinancing operations during the recent financial crisis.
The theoretical framework focuses on providing a sufficient background for the empirical part of the study. The theory part includes examination of monetary policy and monetary policy rules, a deeper look into the Taylor Rule and it concludes with theory about reasons for banking crises and the timeframe of the recent financial crisis.
The timeframe of the study is 2000-2014 with the study being conducted at the end of 2014 and during the spring of 2015. The empirical part of the study is done using quantitative methods.
The research reported in this thesis was able to answer the primary research question: how does the interest rate calculated using the Taylor Rule compare to the European Central Bank interest rate on the main refinancing operations? The research also provided answers to the secondary research questions on the accuracy and variation between the Taylor Rule and the ECB steering rate. The results show that the Taylor Rule follows the path of the European Central Bank’s steering rate and in most parts mimics the fluctuations in the European Central Bank’s steering rate, but the Taylor Rule has been more volatile.