Advanced Search
MyIDEAS: Login to save this article or follow this journal

'Solvency rule' versus 'Taylor rule': an alternative interpretation of the relation between monetary policy and the economic crisis

Contents:

Author Info

  • Emiliano Brancaccio
  • Giuseppe Fontana

Abstract

One of the more debated interpretations of the economic crisis that started in 2007–08 is based on the 'Taylor rule' equation, namely the idea that over the period 2002–05 the Fed has implemented a low-interest policy that has led to the housing bubble and finally to the 'Great Recession'. This paper shows that the Taylor rule equation not only rests on the so-called 'new consensus macroeconomics', but also on the neoclassical theory of growth. The various criticisms raised against these theoretical foundations suggest that interpretations of the Great Recession based on the Taylor rule equation are building their arguments on shaky theoretical premises. Furthermore, this paper shows that an equation formally similar but logically alternative to the Taylor rule can be regarded as the expression of a general condition of solvency of firms and workers. According to this 'solvency rule' the prevailing outcome of monetary policy decisions is the 'regulation' of insolvencies. Copyright , Oxford University Press.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://hdl.handle.net/10.1093/cje/bes028
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Oxford University Press in its journal Cambridge Journal Of Economics.

Volume (Year): 37 (2013)
Issue (Month): 1 ()
Pages: 17-33

as in new window
Handle: RePEc:oup:cambje:v:37:y:2013:i:1:p:17-33

Contact details of provider:
Postal: Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK
Fax: 01865 267 985
Email:
Web page: http://www.cje.oupjournals.org/

Order Information:
Web: http://www.oup.co.uk/journals

Related research

Keywords:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Hahn, Frank, 1982. "The Neo-Ricardians," Cambridge Journal of Economics, Oxford University Press, vol. 6(4), pages 353-74, December.
  2. Philip Arestis, 2009. "New Consensus Macroeconomics: A Critical Appraisal," Economics Working Paper Archive wp_564, Levy Economics Institute.
  3. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," CEPR Discussion Papers 1908, C.E.P.R. Discussion Papers.
  4. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers 2139, C.E.P.R. Discussion Papers.
  5. George Argitis, 2008. "Inflation targeting and Keynes's political economy," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 31(2), pages 249-270, December.
  6. Giuseppe Fontana, 2008. "Structural Models and Monetary Policy at the Federal Reserve Board: Last Vestiges of the Neoclassical Synthesis or Pragmatic New Consensus?," Ekonomia, Cyprus Economic Society and University of Cyprus, vol. 11(2), pages 69-88, Winter.
  7. Gilberto Tadeu Lima & Mark Setterfield, 2011. "The Cost Channel of Monetary Policy in a Post Keynesian Macrodynamic Model of Inflation and Output Targeting," Working Papers 1102, Trinity College, Department of Economics.
  8. Tony Aspromourgos, 2004. "Sraffian research programmes and unorthodox economics," Review of Political Economy, Taylor & Francis Journals, vol. 16(2), pages 179-206.
  9. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
  10. Luigi L. Pasinetti, 2000. "Critique of the neoclassical theory of growth and distribution," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 53(215), pages 383-431.
  11. Emiliano Brancaccio, 2010. "On the Impossibility of Reducing the Surplus Approach to a Neoclassical 'Special Case': A Criticism of Hahn in a Solowian Context," Review of Political Economy, Taylor & Francis Journals, vol. 22(3), pages 405-418.
  12. Jean-Paul Fitoussi & Francesco Saraceno, 2010. "Inequality and Macroeconomic Performance," Documents de Travail de l'OFCE 2010-13, Observatoire Francais des Conjonctures Economiques (OFCE).
  13. Peter Kriesler & Marc Lavoie, 2007. "The New Consensus on Monetary Policy and its Post-Keynesian Critique," Review of Political Economy, Taylor & Francis Journals, vol. 19(3), pages 387-404.
  14. Luigi L. Pasinetti, 2000. "Critique of the neoclassical theory of growth and distribution," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 53(215), pages 383-431.
  15. Michael Woodford, 2001. "The Taylor Rule and Optimal Monetary Policy," American Economic Review, American Economic Association, vol. 91(2), pages 232-237, May.
  16. Graziani,Augusto, 2003. "The Monetary Theory of Production," Cambridge Books, Cambridge University Press, number 9780521812115, April.
  17. repec:fip:fedgsq:y:2005:i:mar10 is not listed on IDEAS
  18. Aldo Barba & Massimo Pivetti, 2009. "Rising household debt: Its causes and macroeconomic implications--a long-period analysis," Cambridge Journal of Economics, Oxford University Press, vol. 33(1), pages 113-137, January.
  19. Peter Docherty, 2009. "Re-Examining The Implications Of The New Consensus: Endogenous Money And Taylor Rules In A Simple Neoclassical Macro Model," Metroeconomica, Wiley Blackwell, vol. 60(3), pages 495-524, 07.
  20. Jane Dokko & Brian Doyle & Michael T. Kiley & Jinill Kim & Shane Sherlund & Jae Sim & Skander Van den Heuvel, 2009. "Monetary policy and the housing bubble," Finance and Economics Discussion Series 2009-49, Board of Governors of the Federal Reserve System (U.S.).
  21. L. Randall Wray, 2007. "A Post-Keynesian View of Central Bank Independence, Policy Targets, and the Rules-versus-Discretion Debate," Economics Working Paper Archive wp_510, Levy Economics Institute.
  22. Jamie Morgan, 2009. "The limits of central bank policy: economic crisis and the challenge of effective solutions," Cambridge Journal of Economics, Oxford University Press, vol. 33(4), pages 581-608, July.
  23. H. Sonmez Atesoglu, 2008. "Monetary policy rules and U.S. monetary policy," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 30(3), pages 403-408, April.
  24. Glenn D. Rudebusch, 2009. "The Fed's monetary policy response to the current crisis," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue may22.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:oup:cambje:v:37:y:2013:i:1:p:17-33. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.