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Exits from Recessions: The U.S. Experience 1920-2007

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  • Michael D. Bordo
  • John Landon-Lane

Abstract

In this paper we provide some evidence on when central banks have shifted from expansionary to contractionary monetary policy after a recession has ended—the exit strategy. We examine the relationship between the timing of changes in several instruments of monetary policy and the timing of changes of selected real macro aggregates and price level (inflation) variables across U.S. business cycles from 1920-2007. We find, based on historical narratives, descriptive evidence and econometric analysis, that in the 1920s and the 1950s the Fed would generally tighten when the price level turned up. By contrast, since 1960 the Fed has generally tightened when unemployment peaked and this tightening often occurred after inflation began to rise. The Fed is often too late to prevent inflation.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15731.

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Date of creation: Feb 2010
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Handle: RePEc:nbr:nberwo:15731

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Cited by:
  1. Hatton, Timothy J. & Thomas, Mark, 2010. "Labour Markets in the Interwar Period and Economic Recovery in the UK and the USA," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7983, C.E.P.R. Discussion Papers.

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