Mercredi | 2015-10-07
B103 à 12h

Florian PRADINES-JOBET – Grégory LEVIEUGE – Yannick LUCOTTE

This article investigates the relationship between central bank conservatism (CBC) and financial instability. Using a new empirical measure of CBC and the well-known banking crises data base of Laeven and Valencia, we adopt a twostep approach. First, we assess whether monetary policy preferences has impacted financial imbalances. We find that a higher degree of conservatism leads to more imbalances. Second, by means of Tobit estimations, we formally prove the existence of a negative effect of CBC on the severity of banking crisis. Thus, the higher the central bank is conservative, the higher the economy is impacted by financial shocks.