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

Antonia López-Villavicencio ()
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Antonia López-Villavicencio: CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique

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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 percentraising 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 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 recession.

Keywords: Monetary policy; output gap; expansions; recessions; asymmetries (search for similar items in EconPapers)
Date: 2013-12
Note: View the original document on HAL open archive server: https://hal.science/hal-05455757v1
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Published in Journal of Macroeconomics, 2013, 38, Part B, pp.382-392. ⟨10.1016/j.jmacro.2013.08.019⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05455757

DOI: 10.1016/j.jmacro.2013.08.019

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