The Fed's TRAP: A Taylor-type Rule with Asset Prices
AbstractThe paper examines if US monetary policy implicitly responds to asset prices. Using real-time data and a GMM framework we estimate a Taylor-type rule with an asset cycle variable, which refers to real estate prices. To analyze the Fed's responses we describe real estate price movements by means of an asset cycle dating procedure. This procedure reveals quasi real-time bull and bear markets. Our analysis yields two main findings. Firstly, the Fed does implicitly respond to real estate prices. Secondly, these responses are pro-cyclical and their intensity changes over time.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 23293.
Date of creation: 14 Jun 2010
Date of revision:
Fed; Monetary Policy; Taylor Rule; Asset Price Cycles; Real Estate;
Find related papers by JEL classification:
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-06-26 (All new papers)
- NEP-CBA-2010-06-26 (Central Banking)
- NEP-MAC-2010-06-26 (Macroeconomics)
- NEP-MON-2010-06-26 (Monetary Economics)
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