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The US monetary performance prior to the 2008 crisis

  • Kui-Wai Li

This article uses a Structural Vector Autoregressive (SVAR) approach to study the different shocks to the monetary performance in the two decades of the US economy prior to the 2008 financial crisis. By using the Federal Fund Rate as a measure of change in the monetary policy, this study shows that interest rate expectation is informative about the future movement of Federal Fund Rate and the anticipated monetary policy should be one of the crucial reasons in causing monetary and financial deterioration in the US economy. This article discusses a possible conjecture of a low interest rate trap when a persistent and prolonged low interest rate regime led to financial instability.

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File URL: http://hdl.handle.net/10.1080/00036846.2012.714071
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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 45 (2013)
Issue (Month): 24 (August)
Pages: 3450-3461

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Handle: RePEc:taf:applec:v:45:y:2013:i:24:p:3450-3461
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  1. William Poole, 1970. "Optimal choice of monetary policy instruments in a simple stochastic macro model," Staff Studies 57, Board of Governors of the Federal Reserve System (U.S.).
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  7. Kaushik Mitra & James Bullard, 2004. "Determinacy, Learnability, and Monetary Policy Inertia," Royal Holloway, University of London: Discussion Papers in Economics 04/14, Department of Economics, Royal Holloway University of London, revised Jul 2004.
  8. Solnik, Bruno, 1987. " Using Financial Prices to Test Exchange Rate Models: A Note," Journal of Finance, American Finance Association, vol. 42(1), pages 141-49, March.
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  15. Stephen G. Cecchetti, 1996. "Practical issues in monetary policy targeting," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 2-15.
  16. Eric M. Leeper & Christopher A. Sims & Tao Zha, 1996. "What Does Monetary Policy Do?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(2), pages 1-78.
  17. Barro, Robert J., 1976. "Rational expectations and the role of monetary policy," Journal of Monetary Economics, Elsevier, vol. 2(1), pages 1-32, January.
  18. Michael Woodford, 2001. "The Taylor Rule and Optimal Monetary Policy," American Economic Review, American Economic Association, vol. 91(2), pages 232-237, May.
  19. Marcus Miller & Paul Weller & Lei Zhang, 2002. "Moral Hazard and the US Stock Market: Analysing the "Greenspan Put"," Economic Journal, Royal Economic Society, vol. 112(478), pages C171-C186, March.
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