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Bernanke vs. Taylor: A Post Mortem (revised August 2014)

Our analysis is intended to shed light on the issue of whether monetary policy contributed to the recent housing boom and bust. We have estimated and analyzed a model that allows a comparison between actual policy and several alternative Taylor Rules. When the Taylor Rule path was computed using revised data and the GDP deflator, we found a notable impact on key housing market variables, supporting Taylor’s critique of Fed policy. However the bulk of our evidence suggests that policy as it would have been conducted under our real-time Taylor Rules would not have had any significant impact on the housing market variables. This conclusion is robust with regard to the price index used as well as the relative weights used on the inflation and output gaps.

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File URL: http://faculty.bus.lsu.edu/papers/pap13_07.pdf
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Paper provided by Department of Economics, Louisiana State University in its series Departmental Working Papers with number 2013-07.

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Handle: RePEc:lsu:lsuwpp:2013-07
Contact details of provider: Postal: Baton Rouge, LA 70803-6306
Fax: 225-578-3807
Web page: http://www.business.lsu.edu/economics
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  1. Fackler, J.S. & Rogers, J.H., 1993. "Output, Inflation and Stabilization: A Counterfactual Analysis," Papers 3-93-4, Pennsylvania State - Department of Economics.
  2. Jarociński, Marek & Smets, Frank, 2008. "House Prices and the stance of Monetary Policy," Working Paper Series 0891, European Central Bank.
  3. Uhlig, Harald, 1999. "What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure," CEPR Discussion Papers 2137, C.E.P.R. Discussion Papers.
  4. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June.
  5. Del Negro, Marco & Otrok, Christopher, 2007. "99 Luftballons: Monetary policy and the house price boom across U.S. states," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 1962-1985, October.
  6. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers 2737, National Bureau of Economic Research, Inc.
  7. Dufour, Jean-Marie, 1980. "Dummy variables and predictive tests for structural change," Economics Letters, Elsevier, vol. 6(3), pages 241-247.
  8. Eric M. Leeper & Tao Zha, 1999. "Modest policy interventions," Working Paper 99-22, Federal Reserve Bank of Atlanta.
  9. John V. Duca & Tao Wu, 2008. "Regulation and the neo-Wicksellian approach to monetary policy," Working Papers 0807, Federal Reserve Bank of Dallas.
  10. Carlos Vargas-Silva, 2007. "Monetary policy and the U.S. housing market: A VAR analysis imposing sign restrictions," Working Papers 0705, Sam Houston State University, Department of Economics and International Business.
  11. James S. Fackler & W. Douglas McMillin, 2011. "Inflation Forecast Targeting: An Alternative Approach to Estimating the Inflation-Output Variability Tradeoff," Southern Economic Journal, Southern Economic Association, vol. 78(2), pages 424-451, October.
  12. Duca, John V., 1996. "Deposit Deregulation and the Sensitivity of Housing," Journal of Housing Economics, Elsevier, vol. 5(3), pages 207-226, September.
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