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What Drives the Fed to Act?

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  • Christian E. Weller

Abstract

This paper studies the determinants of monetary policy since 1980 to see whether the Fed has truly followed an ad hoc approach, or whether some variables playa more important role in determining monetary policy than others. The results suggest that the Fed consistently responds to the unemployment rate, and that changes in the unemployment are the most important determinant of monetary policy. The results also indicate that the Fed responded, for some periods, to the real rate of return in the stock market, especially to lower the risk offinancial instabilities, rather than to control asset price inflation.

Suggested Citation

  • Christian E. Weller, 2002. "What Drives the Fed to Act?," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 24(3), pages 391-417, March.
    • Handle: RePEc:mes:postke:v:24:y:2002:i:3:p:391-417
    DOI: 10.1080/01603477.2002.11490332
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    References listed on IDEAS

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    1. Frank Smets, 1997. "Financial-asset Prices and Monetary Policy: Theory and Evidence," RBA Annual Conference Volume (Discontinued), in: Philip Lowe (ed.),Monetary Policy and Inflation Targeting, Reserve Bank of Australia.
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    Cited by:

    1. Eckhard Hein & Achim Truger, 2007. "Monetary Policy, Macroeconomic Policy Mix and Economic Performance in the Euro Area," Chapters, in: Eckhard Hein & Achim Truger (ed.), Money, Distribution and Economic Policy, chapter 11, Edward Elgar Publishing.

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