An Evaluation of the US Monetary Policy Since Mid-80s

We investigate the role of housing price in the conduct of monetary policy for the US economy. Since 1986, we construct an empirical model, simulate the estimated model with a set of alternative monetary policy rules, and compare the stabilization performances of the rules. Our findings are: i) there is plenty of room for further stabilization of inflation and output, if the Fed shifts from the historical monetary policy rule to the optimal counterpart; ii) the optimal rule improves upon the historical one not because the former takes into account additional policy indicators such as movements in housing prices, but because it takes a quite different reaction scheme reacts toward the historical policy indicators, and iii) as long as the Fed maintains appropriate reactions to the historical policy indicators, housing price inflation does not contain much extra information for further stabilization.