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An Exit Rule for Monetary Policy

Author

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  • 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
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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. John B. Taylor, 2007. "Housing and monetary policy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 463-476.
    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. John B Taylor, 2009. "The Need to Return to a Monetary Framework," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 44(2), pages 63-72.
    4. John B. Taylor, 2009. "The Need for a Clear and Credible Exit Strategy," Book Chapters, in: John D. Ciorciari & John Taylor (ed.), The Road Ahead for the Fed, chapter 6, Hoover Institution, Stanford University.
    5. 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.
    6. John B. Taylor, 2009. "The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong," NBER Working Papers 14631, National Bureau of Economic Research, Inc.
    7. 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. John B. Taylor, 2011. "Legislating a Rule for Monetary Policy," Cato Journal, Cato Journal, Cato Institute, vol. 31(3), pages 407-415, Fall.
    2. repec:pri:cepsud:204blinder is not listed on IDEAS
    3. 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.
    4. Alan S. Blinder, 2010. "Quantitative easing: entrance and exit strategies," Review, Federal Reserve Bank of St. Louis, vol. 92(Nov), pages 465-480.
    5. Alan S. Blinder, 2010. "Quantitative easing: entrance and exit strategies," Review, Federal Reserve Bank of St. Louis, vol. 92(Nov), pages 465-480.

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    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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