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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: ChanceIs who wrote (57871)7/17/2006 1:18:55 PM
From: CalculatedRiskRead Replies (1) of 306849
 
This interview with Dr. Taylor (of Taylor Rule fame and much more) is interesting. Taylor argues that Greenspan held rates too low for too long during the same periods you suggest:

"In 1998 ... interest rates were cut by 75 basis points at around the time of the long-term capital management crisis and the related Russian default, and they stayed low quite a while afterwards. Looking back, you could say that was, if not an overreaction, a reaction that lasted longer than it should have. It was around the same time as the bubble, but I wouldn't say it was a fault of not looking at bubbles.

I think that is a period that policymakers and researchers should look at carefully. Was that cut in interest rates the right thing? Did it let the boom go on too long? It's actually an example where you could say there were deviations from a policy rule. The cut in interest rates was a discretionary move. So looking back at that episode is really important. It would also be important to look back at a similar episode after the 1987 crash when the Fed cut rates and at a third episode, in 2003, when the interest rate was held low for quite a while."

That is a polite way of saying he thinks Greenspan blundered.

From: Interview with John B. Taylor
minneapolisfed.org
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