Financial crisis, Taylor rule and the Fed
Applied Economics Letters, 2013, vol. 20, issue 17, 1557-1561
We investigate how the Federal Reserve (Fed) hit the zero lower bound (ZLB) interest rate while operating under a Taylor-type policy rule. We estimate a reaction function, and the results indicate that during the crisis Fed increased the weight on output without also increasing the weight on inflation which led them to hit the ZLB.0
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