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The productivity gap: Monetary policy, the subprime boom, and the post-2001 productivity surge

George Selgin, David Beckworth and Berrak Bahadir

Journal of Policy Modeling, 2015, vol. 37, issue 2, 189-207

Abstract: It is widely believed that, in the wake of the crash, the Fed kept the federal funds target rate too low for too long, inadvertently contributing to the subprime boom. We attribute this and other Fed departures from a “neutral” policy stance to the Fed's failure to respond appropriately to exceptional rates of total factor productivity growth. We then show how the Fed, by adhering to a nominal GDP growth rate target, might have succeeded in maintaining such a neutral stance.

Keywords: Productivity; Neutral interest rate; Output gap; Business cycle (search for similar items in EconPapers)
JEL-codes: E32 E52 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1016/j.jpolmod.2015.02.005

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Handle: RePEc:eee:jpolmo:v:37:y:2015:i:2:p:189-207