Alexander Erler

Exchange Market Pressure and Monetary Policy in Emerging Market Economies: New Evidence from Treatment‐Effect Estimations

The way central banks react to exchange market pressure is likely to affect the subsequent economic development and the associated economic costs. In a situation of currency pressure the central bank can in principle decide to let the currency float freely, to maintain the peg or to implement a managed float policy, i.e. a mix of depreciation and intervention. As the central banks choices are subject to self selection and endogeneity, we use propensity score matching to adequately cope with these methodical challenges. We find that monetary authorities have two options to keep down the economic costs in terms of output, namely stabilizing the exchange rate or letting the currency float freely. In contrast, a managed float under currency pressure is accompanied by the worst possible outcome with an average loss of gross domestic product (GDP) between 5% and 6%.

The Fed's TRAP: A Taylor-type Rule with Asset Prices

The paper examines if US monetary policy implicitly responds to asset prices. Using real-time data and a GMM framework we estimate a Taylor-type rule with an asset cycle variable, which refers to real estate prices. To analyze the Feds responses we describe real estate price movements by means of an asset cycle dating procedure. This procedure reveals quasi real-time bull and bear markets. Our analysis yields two main findings. Firstly, the Fed does implicitly respond to real estate prices. Secondly, these responses are pro-cyclical and their intensity changes over time.

Taylor Rule and Subprime Crisis - An Empirical Analysis of the US Monetary Policy (Taylor-Regel und Subprime-Krise - Eine Empirische Analyse der US-Amerikanischen Geldpolitik) (German)

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 ongoing financial crisis. However, the evidence also suggests that other factors were certainly at play.