links for 2007-08-26

• Reviving a Consumer Watchdog - washingtonpost.com
• Inside the Countrywide Lending Spree - New York Times
• Drop Foreseen in Median Price of U.S. Homes - New York Times
• The Fed’s Subprime Solution - New York Times
• Stiff-Arming Children’s Health - New York Times
• In Nature’s Casino - New York Times

Comments

[robertdfeinman]

I don't know if this has been mentioned before:
The Fed’s Real Reaction Function
Using a VAR model of the American economy from 1984 to 2003, we find that, contrary to official claims, the Federal Reserve does not target inflation or react to “inflation signals.” Rather, the Fed reacts to the very “real” signal sent by unemployment, in a way that suggests that a baseless fear of full employment is a principal force behind monetary policy. Tests of variations in the workings of a Taylor Rule, using dummy variable regressions, on data going back to 1969 suggest that after 1983 the Federal Reserve largely ceased reacting to inflation or high unemployment, but continued to react when unemployment fell “too low.” Further, we find that monetary policy (measured by the yield curve) has significant causal impact on pay inequality—a domain where the Fed refuses responsibility. Finally, we test whether Federal Reserve policy has exhibited a pattern of partisan bias in presidential election years, with results that suggest the presence of such bias, after controlling for the effects of inflation and unemployment.