Journal of Economics and Finance

, Volume 37, Issue 1, pp 136–149 | Cite as

The Fed’s TRAP

A Taylor-type rule with asset prices
  • Alexander ErlerEmail author
  • Christian Drescher
  • Damir Križanac


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 an asset cycle dating procedure. Our analysis yields two main findings. Firstly, the Fed does implicitly respond to asset price booms in the real estate market. Secondly, these responses are typically pro-cyclic and their intensity changes over time.


Federal Reserve Monetary Policy Taylor Rule Asset Price Cycles Real Estate 

JEL Classification

E52 E58 



We would like to thank Egon Görgens, Bernhard Herz and Franz Seitz for their useful comments. We would also like to thank John B. Taylor for his comments on an earlier version of this research work. Of course, we retain all responsibility for remaining deficiencies.


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Copyright information

© Springer Science+Business Media, LLC 2011

Authors and Affiliations

  • Alexander Erler
    • 1
    Email author
  • Christian Drescher
    • 1
  • Damir Križanac
    • 1
  1. 1.Department of Law and Economics, Chair of International Economics and FinanceUniversity of BayreuthBayreuthGermany

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