A cross-country analysis investigating the impact of the 2008-09 Financial Crisis on the conduct of monetary policy
Taylor Rule analysis is utilised to enable an analysis of how the 2008 Financial Crisis impacted on the conduct of monetary policy across various countries. Structural Break Analysis and Markov Switching (MS) Regressions are used in order to identify breaks and changes in the conduct of monetary policy as result of the Crisis. The study finds evidence of Crisis-related changes in monetary policy conduct in South Africa, as well as in the US, the UK, the Euro Area (the ECB), Colombia, Peru and South Korea. On the other hand, the results for Brazil, Mexico and Israel do not show conclusive differences in monetary policy conduct in the pre-Crisis and post-Crisis periods. Along with South Africa, there are only two other countries, namely Brazil and Mexico, whose smoothing parameters are larger in the post-Crisis period. Four out of the ten countries place a lower weight on inflation post-Crisis. Six central banks reduce their weighting on the output gap after the Crisis.