Interest rates, government purchases and the Taylor rule in recessions and expansions

Antonia López-Villavicencio
Authors registered in the RePEc Author Service: Antonia López Villavicencio

Journal of Macroeconomics, 2013, vol. 38, issue PB, 382-392

Abstract: In this paper we study asymmetries in the Taylor rule for the United States during the 1970–2012 period. We show that monetary authorities have been constantly concerned with excess demand in overheated periods – when the output gap is positive or the unemployment rate falls below 7% or 7.5% – raising the interest rate aggressively in that case. However, the Fed seems more reluctant to decrease the fund’s rate during recessions. On the contrary, monetary authorities react symmetrically and forcefully to inflation in booms and busts. Finally, we provide evidence that an expansionary fiscal policy does not lead to an increase in interest rates, and thus there is not necessary a “crowding-out” effect in recessions.

Keywords: Monetary policy; Asymmetries; Recessions; Expansions; Output gap (search for similar items in EconPapers)
JEL-codes: C12 E32 E52 E58 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0164070413001419
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:38:y:2013:i:pb:p:382-392

DOI: 10.1016/j.jmacro.2013.08.019

Access Statistics for this article

Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos

More articles in Journal of Macroeconomics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().