The Fed's TRAP: A Taylor-type Rule with Asset Prices

Christian Drescher (), Alexander Erler and Damir Krizanac ()

MPRA Paper from University Library of Munich, Germany

Abstract: The paper examines if US monetary policy implicitly responds to asset prices. Using real-time data and a GMM framework we estimate a Taylor-type rule with an asset cycle variable, which refers to real estate prices. To analyze the Fed's responses we describe real estate price movements by means of an asset cycle dating procedure. This procedure reveals quasi real-time bull and bear markets. Our analysis yields two main findings. Firstly, the Fed does implicitly respond to real estate prices. Secondly, these responses are pro-cyclical and their intensity changes over time.

Keywords: Fed; Monetary Policy; Taylor Rule; Asset Price Cycles; Real Estate (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2010-06-14
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:23293

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