James Hamilton (an econ professor at UCSD) recently discussed the Taylor Rule and the housing boom. The money quote is at the very end:
There was a lot of discussion at the conference about whether the Fed should have leaned against the accelerating real estate prices during 2003-2005. Taylor’s simulations suggest that the Fed should perhaps have been thinking of itself as one important cause of that phenomenon in the first place.
Artificially low interest rates caused by printing money eventually leads to inflated prices? Perhaps this is why entrepreneurs don’t outsmart the Fed-induced business cycle. Via Mike.
