This paper examines the impact of the U.S. monetary policy on the Subprime mortgage crisis using a modified taylor rule. The main finding is that during the pre-crisis period the short term rate deviated significantly from the estimated taylor rate. This deviation may have been a cause of the...

Observers have relied increasingly on simple reaction functions, such as the Taylor rule, to assess the conduct of monetary policy. Applying this approach to deflationary or near-zero inflation environments is problematic, however, and this paper examines two shortcomings of particular relevance...

Ever since its establishment in 1999, the European Central Bank worked on maintaining relative price stability mainly through inflation targeting. The ECB aims at a target inflation rate below but close to 2%. However, the diversity among the member states in the European Union and the Eurozone...

The Austrian economists Ludwig von Mises and Friedrich A. Hayek developed a unique theory of the business cycle. In their view, an unsustainable boom ensues when the rate of interest prevailing in the market falls below the natural rate. The boom is characterized not only by an increase in...

We study a flexible price IS/LM economy in which the money supply and interest rate play the role of monetary policy instruments. If the central bank sets the nominal interest rate, the ambiguity in the price level is manifested. However, the equilibrium price level is permissible, if the...

The article examines if US monetary policy implicitly responds to asset price booms. Using real-time data and a GMM framework we estimate a Taylor-type rule with an asset variable that captures phases of booms and busts in the real estate market. We identify quasi real-time booms and busts using...