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Monetary Policy Rules

Empirical Applications Based on Survey Data


Dirk Bleich

This work provides different studies of how econometric evaluation of monetary policy based on forward-looking Taylor rules is conducted. The first part discusses theoretical results regarding the Taylor principle and can be used as a guideline for the evaluation of the following three empirical applications based on survey data of Consensus Economics. The first application deals with the question whether the introduction of inflation targeting affects monetary policy. The second application investigates the consequences of oil price movements for monetary policy. The third application analyzes monetary policy conditions in Spain before and after the changeover to the Euro by estimating forward-looking Taylor rules.


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Chapter 5 The Euro and the Spanish housing bubble


5.1 Introduction Spain’s economic crisis starting in 2008 clearly has to be seen in the context of the world economic crisis triggered by the burst of the U.S subprime hous- ing bubble.1 However, especially the Spanish pre-2008 housing boom seems to originate – at least partly – east of the Atlantic Ocean. Besides govern- mental regulations, which for example include that 15 percent of mortgage payments are deductible from personal income, cheap credit probably played a major role for the recent housing boom in Spain. Figure 5.1 shows the development of three mortgage interest rates in Spain.2 Whereas the average mortgage rate was between 10 and 12 percent for 1995, it dropped down to about 5 percent in 1999 and remained at a relatively low level. Additionally, Table 5.1 shows that at the same time the credit conditions were associated with a sharp increase in the volume of house purchase loans. From 1997 to 2007 the volume of house purchase loans more the sextupled from 104 Billion Euro to 645 Billion Euro. Weighted by GDP this value almost tripled form a ratio of .21 to .61. 1 Bean (2009) offers an excellent overview about the causes of the financial crisis and the subsequent recession. 2 The ’CECA’ Reference Mortgage Interest Rates is an average interest rate based on personal loans and mortgage loans provided by the Spanish Confederation of Savings Banks. The ’IRPH’ Mortgage Interest Rate (Banks) is the obtained average mortgage interest rate with a duration of more than three...

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