1.543 481


This paper analyzes the run up of the financial crisis from monetary policy point of view. After showing
that the Taylor rule closely conforms to policy interest rate setting practices of the Federal Reserve System
(Fed) from 1987 onwards, we use the Taylor rule in order to represent the Fed’s interest rate setting policy.
Utilizing cumulative sum (cusum) and Chow forecast tests we show that starting from the early 2000s the
Fed started to follow a loose monetary policy. We argue that loose monetary policy and the consequent
excess liquidity in the markets, accompanied by easy credit policies and deregulation in the financial
system helped to fledge a housing bubble and hence the 2007-08 global financial crisis. We also discuss
unconventional monetary policies during the crisis period and the desire of the Fed to return to normal time
policies as the economic situation improves.
Keywords: Monetary Policy, Taylor Rule, Global Financial Crisis
Jel Codes: E52, E58, G01

Anahtar kelimeler

Para Politikası, Taylor Kanunu, Küresel Finansal Kriz

Tam metin:




ADAM, C., COBHAM, D. and GIRARDIN, E. 2005. “Monetary frameworks and institutional constraints: UK monetary policy reaction functions, 1985-2003” Oxford Bulletin of Economics and Statistics, 67 (4), pp. 497-516

AHREND, R., B. COURNEDE and R. W. PRICE (2008). “Monetary Policy, Market Excesses and Financial Turmoil”, OECD Economic Department WP, No. 597

BEAN, C., PAUSTIAN, M., PENALVER, A. and TAYLOR, T. 2010. “Monetary policy after the fall” BIS Review 111/2010

BERNANKE, Ben S. 2010. “Monetary Policy and the Housing Bubble” Annual Meeting of the American Economic Association. Atlanta, Georgia.

BLANCHARD, Oliver and GALI, Jordi. 2007. “Real wage rigidities and the New Keynesian model” Journal of Money Credit and Banking, Vol. 39, No. 1

BROWN, R. L, DURBIN, J., EVANS, J. M. 1975. “Techniques for testing the constancy of regression relationships over time” Journal of Royal Statistical Society Series. Series B (Methodological) Vol. 37, No.2 pp.149-192

CLARIDA, R., GALI, J., GERTLER, M., 1998 “Monetary policy rules in practice, some international evidence” European Economic Review 42, pp. 1033-1067

CLARIDA, R., GALI, J., GERTLER, M., 2000. “Monetary policy rules and macroeconomic stability: Evidence and some theory” Quarterly Journal of Economics 115, pp. 147-180

DAVIS, Steven J. and KAHN, James A. 2008 “Interpreting the great moderation: Changes in the volatility of economic activity at the macro and micro levels” NBER WP No. 14048

DEMERS, Frederick and RODRIGUES, Gabriel, 2002. “Estimation of the Taylor rule for Canada under multiple structural changes” University of Ottawa WP 0107E

GERTLER, Mark and KARADI, Peter. 2011. “A model of unconventional monetary policy” Journal of Monetary Economics 58, pp.17-34

JAROCINSKI, Marek and SMETS, Frank, 2008. “House Prices and Stance of Monetary Policy” 32nd Annual Economic Policy Conference of the Federal Reserve Bank of St. Louis on “Monetary Policy under Uncertainty”

JIMENEZ, G., ONGENA, S., PEYDRO, J., SAURINA, J., 2014. “Hazardous Times for Monetary Policy: What Do Twenty-Three Million Bank Loans Say About the Effects of Monetary Policy on Credit Risk-Taking?” Econometrica, 82,2 pp. 463-505.

NELSON, Edward 2000. “UK monetary policy 1972-97: a guide using Taylor rules” Bank of England Working Paper

ROTEMBERG, Julio, and WOODFORD, Michael 1999. “Interest rate rules in an estimated sticky price model” in J. B. Taylor (ed.), Monetary Policy Rules, University of Chicago Press, Chicago, IL.

RUDEBUSCH, Glenn D 2002. “Term structure evidence on interest rate smoothing and monetary policy inertia” Journal of Monetary Economics 49, pp. 1161-1187

RUDEBUSCH, Glenn D. 2006. “Monetary policy inertia: fact or fiction?” International Journal of Central Banking Vol.2, No.4

RUDEBUSCH Glenn D. and WU Tao 2008. “A macro-finance model of the term structure, monetary policy and the economy” The Economic Journal 118, pp. 906-926

STOCK, James H. and WATSON, Mark W. 2003. “Has the Business Cycle Changed? Evidence and Explanations” Federal Reserve Bank of Kansas City Symposium, Monetary Policy and Uncertainty pp. 1-47

TAYLOR, John B. 1993. “Discretion versus policy rules in practice” Carnegie-Rochester Conference Series on Public Policy, 39, pp. 195-214

TAYLOR, John B. 2009. “Economic Policy and the Financial Crisis: An Empirical Analysis of What Went Wrong” Critical Review: A Journal of Politics and Society, 21:2-3, pp. 341-364

TAYLOR, John B. 2010. “Getting Back on Track: Macroeconomic policy lessons from the financial crisis” Federal Reserve Bank of St. Louis Review, May/June 2010, pp. 165-176

TAYLOR, Mark P. and DAVRADAKIS, Emmanuel 2006. “Interest rate setting and inflation targeting: evidence of nonlinear Taylor rule for the United Kingdom” Studies in Nonlinear Dynamics & Econometrics Vol 10, No. 4, Article 1

WOODFORD, Michael 2003. “Interest and Prices” Princeton University Press, Princeton, NJ.

Internet References (Data Sources)

Federal Reserve Bank of St. Louis. (29.09.2014) Available From:

US Bureau of Labor Statistics. (25.05.2014) Available From: