The Taylor Rule with an Alternative Housing Rent Index
نویسندگان
چکیده
The rent of shelter accounts for approximately a third of the Consumer Price Index (CPI). Using a new housing rent index (RRI) developed by Ambrose, Coulson, and Yoshida (2014), we modify the CPI and compute the Taylor rule for the period from 2000 to 2010. With this timely rent index, Taylor rule becomes more consistent with the Federal funds rate than the conventional calculations. However, the RRI-based Taylor rule still indicates that the Federal funds rate was too low during the housing boom between 2003 and 2006. In contrast, the Federal funds rate was too high during recessionary periods between 2001 and 2002 after the IT boom and between 2006 and 2009 after the housing boom. JEL Classification: E52; R31; C43; C82
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