The notion that systematic Taylor rule deviations has a role to play in the real estate bubble in the United States is an issue that has been rigorously debated---see John Taylor (PDF) and Marco del Negro and Christopher Otrok for opposing views---but broader evidence at the cross-country level is relatively scarce.
The prediction season is in full swing, and prognosticators have, as usual, appended the warning that economic forecasts at this stage are subject to exceptional uncertainty. Such exceptional uncertainty is always with us when looking ahead – there is always a fork in the road, no matter what the circumstances are.
The nuance this year is that, while the recovery in East Asia will depend on prospects for the rest of the world, notably in the advanced economies, the outlook for those economies hinges on policies to address the causes of the financial crisis. Thus far, it’s clear that very little has been done to redress the regulatory issues that led to a near meltdown of the global financial system – while the rebound from the financial and economic crisis has been substantially stronger than anticipated only months earlier. And these developments explain why opinions differ on the future path of regulatory reforms and their impacts.
Just as Asian economies started to recover from the global recession, policymakers and markets have started to worry about unwarranted asset price increases.