Title:The Fedís TRAP: A Taylor-type Rule with Asset Prices
Authors:Christian Drescher, Alex Erler and Damir Krizanac
Journal:Journal of Economics and Finance, forthcoming
Year:2011
Abstract:The article examines if US monetary policy implicitly responds to asset price booms. Using real-time data and a GMM framework we estimate a Taylor-type rule with an asset variable that captures phases of booms and busts in the real estate market. We identify quasi real-time booms and busts using an asset cycle dating procedure. Our analysis yields two main findings. Firstly, the Fed does implicitly respond to asset price booms in the real estate market. Secondly, these responses are typically pro-cyclic and their intensity changes over time.
Key words:Federal Reserve, monetary policy, Taylor rule, asset price cycles, real estate
JEL class.:E52, E58
Download:Springer Verlag