An Exit Rule for Monetary Policy

John Taylor

No 09-009, Discussion Papers from Stanford Institute for Economic Policy Research

Abstract: A simple exit rule from the extraordinary measures taken by the Federal Reserve in the past two years is proposed. The rule describes the joint path of the interest rate and the level of reserves. The rule has several attractive properties including a predictable return to traditional monetary policy which had worked well for two decades before the crisis. In addition, the paper divides the financial crisis into three periods: pre-panic, panic and post-panic. It shows that the extraordinary measures probably did not work in the prepanic or the post-panic periods, and may have helped bring on the panic, but may have some positive impact during the panic.

Keywords: monetary policy; financial crisis (search for similar items in EconPapers)
JEL-codes: E58 (search for similar items in EconPapers)
Date: 2010-02
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Citations: View citations in EconPapers (6)

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