Talk given by John B. Taylor at ASSA 2014 Meeting in Philadelphia. What is the role for the policy in recovery after great recession?

1. The Role of Policy in the
Great Recession and the Weak Recovery
John B Taylor
Stanford University
EconomicsOne.com
@EconomicsOne
AEA Meetings
January 3, 2014

2. U.S. Inflation
Percent
12
10
12
4-quarter average
Q2 1989
Fed funds
rate = 9.7%
Inflation Rate
10
Q3 2003
Fed funds
rate = 1.0%
8
Q1 1997
Fed funds
rate = 5.5%
Q1 1968
Fed funds
rate = 4.8%
6
8
6
4
4
2
2
0
0
55
60
65
70
75
80
85
90
95
00
05
10
2

3. U.S. Inflation
Percent
12
12
4-quarter average
10
10
8
8
6
6
4
4
2
2
0
0
55
60
65
70
75
80
85
90
95
00
05
10
3

4. U.S. Inflation
Percent
12
10
12
4-quarter average
Q2 1989
Fed funds
rate = 9.7%
Inflation Rate
10
8
8
Q1 1968
Fed funds
rate = 4.8%
6
6
4
4
2
2
0
0
55
60
65
70
75
80
85
90
95
00
05
10
4

5. U.S. Inflation
Percent
12
10
12
4-quarter average
Q2 1989
Fed funds
rate = 9.7%
Inflation Rate
10
Q3 2003
Fed funds
rate = 1.0%
8
Q1 1997
Fed funds
rate = 5.5%
Q1 1968
Fed funds
rate = 4.8%
6
8
6
4
4
2
2
0
0
55
60
65
70
75
80
85
90
95
00
05
10
5

6. Billions of dollars
4,000
Original QE3
3,500
3,000
2,500
2,000
QE2
1,500
QE1
1,000
500
Liquidity operations
/
9/11
2008 Panic
0
2000 2002 2004 2006 2008 2010 2012 2014
Reserve Balances
6

7. Billions of dollars
4,000
Original QE3
3,500
3,000
2,500
2,000
QE2
1,500
QE1
1,000
500
Liquidity operations
/
9/11
2008 Panic
0
2000 2002 2004 2006 2008 2010 2012 2014
Reserve Balances
7

8. Billions of dollars
4,000
Original QE3
3,500
3,000
2,500
2,000
QE2
1,500
QE1
1,000
500
Liquidity operations
/
9/11
2008 Panic
0
2000 2002 2004 2006 2008 2010 2012 2014
Reserve Balances
8

9. October 1
9/15
Lehman
10/13 New TARP
announced
9

10. 2012
240,000
2011
2010
220,000
2009
2008
200,000
2006
2007
Number of federal workers
employed in regulatory activites
(exlcuding TSA employees)
180,000
160,000
140,000
1979
1980
1981
1982
1983
1984
1985
120,000
10

11. 11

12. 12

13. 12
10
8
Average of previous
8 recessions with
financial crises
6
4
Recovery from
2007-2009 recession
2
0
1882
1893
1907
1913
1929
1973
1981
1990
Growth rate in first 8 quarters of a recovery
from previous recessions with a financial crisis
(identified by year recession began)
13