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An Exit Rule for Monetary Policy

Author

Listed:
  • John Taylor

    () (Economics Department, Stanford University)

Abstract

A simple exit rule from the extraordinary measures taken by the Federal Reserve in the past two years is proposed. The rule describes the joint path of the interest rate and the level of reserves. The rule has several attractive properties including a predictable return to traditional monetary policy which had worked well for two decades before the crisis. In addition, the paper divides the financial crisis into three periods: pre-panic, panic and post-panic. It shows that the extraordinary measures probably did not work in the prepanic or the post-panic periods, and may have helped bring on the panic, but may have some positive impact during the panic.

Suggested Citation

  • John Taylor, 2010. "An Exit Rule for Monetary Policy," Discussion Papers 09-009, Stanford Institute for Economic Policy Research.
  • Handle: RePEc:sip:dpaper:09-009
    as

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    File URL: http://www-siepr.stanford.edu/repec/sip/09-009.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. John B. Taylor & John C. Williams, 2009. "A black swan in the money market," Proceedings, Federal Reserve Bank of San Francisco, issue Jan.
    3. 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

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    Cited by:

    1. Giorgio Giorgio, 2014. "Monetary policy challenges: how central banks changed their modus operandi," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 4(1), pages 25-43, June.
    2. Alan S. Blinder, 2010. "Quantitative easing: entrance and exit strategies," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 465-480.
    3. repec:spr:pharme:v:4:y:2014:i:1:p:25-43 is not listed on IDEAS

    More about this item

    Keywords

    monetary policy; financial crisis;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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