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Does the Crisis Experience Call for a New Paradigm in Monetary Policy?

Author

Listed:
  • John B. Taylor

Abstract

This paper shows that the monetary policy paradigm that was in place before the financial crisis worked very well and that the crisis occurred only after policy makers deviated from that paradigm. The paper also evaluates monetary policy during the financial crisis by dividing the crisis into three periods: pre-panic, panic and post-panic. It shows that the extraordinary measures did not work well in the pre-panic or the post-panic periods; instead they helped bring on the panic, even though they may have some positive impact during the panic. The implication of the paper is that the crisis does not call for a new paradigm for monetary policy.

Suggested Citation

  • John B. Taylor, 2010. "Does the Crisis Experience Call for a New Paradigm in Monetary Policy?," CASE Network Studies and Analyses 402, CASE-Center for Social and Economic Research.
  • Handle: RePEc:sec:cnstan:0402
    as

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    File URL: http://www.case-research.eu/upload/publikacja_plik/30087204_CNSA_402.pdf
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    References listed on IDEAS

    as
    1. Todd Keister & James J. McAndrews, 2009. "Why are banks holding so many excess reserves?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 15(Dec).
    2. John C. Williams & John B. Taylor, 2009. "A Black Swan in the Money Market," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 58-83, January.
    3. Johannes C. Stroebel & John B. Taylor, 2009. "Estimated Impact of the Fed's Mortgage-Backed Securities Purchase Program," NBER Working Papers 15626, National Bureau of Economic Research, Inc.
    4. Tobias Adrian & Christopher R. Burke & James J. McAndrews, 2009. "The Federal Reserve's Primary Dealer Credit Facility," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 15(Aug).
    5. Daniel L. Thornton, 2009. "Negating the inflation potential of the Fed's lending programs," Economic Synopses, Federal Reserve Bank of St. Louis.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Teaching Modern Macroeconomics at the Principles Level – Pre crisis
      by Amol Agrawal in Mostly Economics on 2010-08-13 12:06:40
    2. Monetary economics is hard
      by Ajay Shah in Ajay Shah's blog on 2010-08-10 20:57:00
    3. Romneynomics is really just neoclassical economics in 2012
      by Dirk in econoblog101 on 2012-10-24 02:30:41

    Citations

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    as


    Cited by:

    1. Eva Zamrazilová, 2011. "Měnová politika: staré lekce, nové výzvy
      [Monetary Policy: Old Lessons and New Challenges]
      ," Politická ekonomie, University of Economics, Prague, vol. 2011(1), pages 3-21.

    More about this item

    Keywords

    financial crisis; monetary policy rule; Taylor rule; quantitative easing;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G01 - Financial Economics - - General - - - Financial Crises

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