The Productivity Gap: Monetary Policy, the Subprime Boom, and the Post-2001 Productivity Surge

23 Pages Posted: 1 Dec 2011 Last revised: 26 Feb 2015

George Selgin

The Cato Institute; University of Georgia

David Beckworth

Mercatus Center at George Mason University

Berrak Buyukkarabacak

Ozyegin University

Date Written: February 25, 2015

Abstract

It is widely believed that, in the wake of the dot.com crash, the Fed kept the federal funds target rate too low for too long, inadvertently contributing to the subprime boom. We attribute this and other Fed departures from a "neutral" policy stance to the Fed’s failure to respond appropriately to exceptional rates of total factor productivity growth. We then show how the Fed, by adhering to a nominal GDP growth rate target, might have succeeded in maintaining such a neutral stance.

Keywords: Productivity, neutral interest rate, output gap, business cycle, Taylor Rule, subprime boom

JEL Classification: E32, E44, F34, F41

Suggested Citation

Selgin, George and Beckworth, David and Buyukkarabacak, Berrak, The Productivity Gap: Monetary Policy, the Subprime Boom, and the Post-2001 Productivity Surge (February 25, 2015). Available at SSRN: https://ssrn.com/abstract=1966659 or http://dx.doi.org/10.2139/ssrn.1966659

George Selgin (Contact Author)

The Cato Institute ( email )

1000 Massachusetts Ave. NW
Washington, DC 20001
United States

HOME PAGE: http://www.cato.org/centers/center-monetary-financial-alternatives

University of Georgia ( email )

Athens, GA 30602-6254
United States
706-542-2734 (Phone)
706-542-3376 (Fax)

HOME PAGE: http://www.terry.uga.edu/~selgin/

David Beckworth

Mercatus Center at George Mason University ( email )

3434 Washington Blvd. 4th Floor
Arlington, VA 22201
United States

HOME PAGE: http://macromarketbusiness.blogspot.com

Berrak Bahadir

Ozyegin University ( email )

Kusbakisi Cd. No: 2
Altunizade Uskudar
Istanbul, 34662
Turkey

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