U.S. Monetary Policy Tightening Cycles
In the papers cited below, we identify the ends of 13 monetary tightening cycles in the U.S. economy from 1955 to 2000 (denoted in the graph by vertical grid lines). Nine of the cycles were followed by NBER-dated recessions (shading) and 10 were followed by increases in unemployment (see table). The updated paper shows that a recession has generally followed the end of a tightening cycle if the yield curve spread at that end month is less than 0.78%, which is the optimal statistical discriminant level. Only one case (1966) was incorrectly classified by this rule of thumb, although there was a subsequent rise in unemployment in that case as well. The papers describe the methodology and provide detailed results. Using essentially the same methodology as in the papers, the end of an additional tightening cycle is identified here as having occurred in September 2006. The yield curve spread was negative in that month and the cycle was again followed by a rise in unemployment and an NBER-dated recession (the "great recession").

References

Tobias Adrian and Arturo Estrella, "Monetary Tightening Cycles and the Predictability of Economic Activity." Economics Letters, May 2008

Tobias Adrian and Arturo Estrella, "Monetary Tightening Cycles and the Predictability of Economic Activity." Federal Reserve Bank of New York Staff Report No. 397, October 2009 (Update of journal article)

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