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- Title
Should the Fed Have Followed the Rule?
- Authors
Seyfried, William
- Abstract
Beginning in 2007, the US economy began experiencing its worst financial crisis since the 1930s. It's generally agreed that the financial crisis began with the bursting of the housing bubble. Though there are many factors that played a role, the focus of this study is the role of monetary policy in contributing to the housing bubble. Using Taylor's rule as a benchmark, monetary policy was found to be "too loose." Further, the degree of looseness was found to significantly affect housing prices, contributing to about half of the increase in housing prices from 2001 to 2007. Even if one allows for the Fed to conduct looser monetary policy than usual in the aftermath of the terrorist attacks of September 11, a quicker response to the clear strengthening of the economy in 2003 would have significantly reduced the increase in housing prices, taking the air out of the bubble before it could burst.
- Subjects
UNITED States; GLOBAL Financial Crisis, 2008-2009; MONETARY policy; HOME prices; BANK loans; MONEY supply; MORTGAGE rates; PRICE inflation; GROSS domestic product; FEDERAL Reserve Bank of St. Louis
- Publication
Journal of Applied Business & Economics, 2010, Vol 10, Issue 6, p11
- ISSN
1499-691X
- Publication type
Article