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A Federal Funds Rate Equation

Author

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  • Mehra, Yash P

Abstract

This paper presents evidence that indicates that U.S. interest rate policy during most of the 1980s can be described by a reaction function in which the federal funds rate rises if real GDP rises above potential GDP, if actual inflation accelerates, or if the long-term bond rate rises. Money growth when included in the reaction function is significant, indicating that money also influenced policy. The results presented here, however, indicate that in recent years the Fed has discounted the leading indicator properties of money. Copyright 1997 by Oxford University Press.

Suggested Citation

  • Mehra, Yash P, 1997. "A Federal Funds Rate Equation," Economic Inquiry, Western Economic Association International, vol. 35(3), pages 621-630, July.
    • Handle: RePEc:oup:ecinqu:v:35:y:1997:i:3:p:621-30
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    Cited by:

    1. Manuel Coutinho Pereira, 2009. "A New Measure of Fiscal Shocks Based on Budget Forecasts and its Implications," Working Papers w200921, Banco de Portugal, Economics and Research Department.
    2. Tachibana, Minoru, 2008. "Inflation zone targeting and the Federal Reserve," Journal of the Japanese and International Economies, Elsevier, vol. 22(1), pages 68-84, March.
    3. V. Anton Muscatelli & Patrizio Tirelli & Carmine Trecoci, 2002. "Does Institutional Change Really Matter? Inflation Targets, Central Bank Reform and Interest Rate Policy in the OECD Countries," Manchester School, University of Manchester, vol. 70(4), pages 487-527, June.
    4. V. Anton Muscatelli & Patrizio Tirelli & Carmine Trecroci, 1998. "Institutional Change, Inflation Targeting and the Stability of Interest Rate Reaction Functions," Working Papers 9815, Business School - Economics, University of Glasgow, revised Aug 1998.
    5. Mehra, Yash P., 2001. "The bond rate and estimated monetary policy rules," Journal of Economics and Business, Elsevier, vol. 53(4), pages 345-358.
    6. Yash P. Mehra, 1999. "A forward-looking monetary policy reaction function," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 33-54.
    7. Paweł Baranowski, 2008. "Reguła Taylora i jej rozszerzenia," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 7-8, pages 1-23.
    8. Kulish Mariano, 2007. "Should Monetary Policy Use Long-Term Rates?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-26, July.
    9. Long, Shaobo & Zuo, Yulan & Tian, Hao, 2023. "Asymmetries in multi-target monetary policy rule and the role of uncertainty: Evidence from China," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 278-296.
    10. Maciej Ryczkowski, 2017. "Forward Guidance, Pros, Cons and Credibility," Prague Economic Papers, Prague University of Economics and Business, vol. 2017(5), pages 523-541.
    11. Marvin Goodfriend, 1998. "Using the term structure of interest rates for monetary policy," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 13-30.
    12. Maciej Ryczkowski, 2016. "Poland as an inflation nutter:The story of successful output stabilization," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 34(2), pages 363-392.
    13. Górajski, Mariusz & Kuchta, Zbigniew & Leszczyńska-Paczesna, Agnieszka, 2023. "Price-setting heterogeneity and robust monetary policy in a two-sector DSGE model of a small open economy," Economic Modelling, Elsevier, vol. 122(C).

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