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Setting the target for the federal funds rate: the determinants of Fed behaviour

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  • Randall Kesselring
  • Dale Bremmer

Abstract

This article analyses the factors the Federal Open Market Committee (FOMC) considers in setting the target for the federal funds rate. The sample consists of 262 FOMC meetings between 1983 and 2005. Statistical results indicate that the Fed's target is inversely related to the unemployment rate and directly related to several measures of expected inflation. Technical factors such as the number of days since the last target change, the size and direction of the previous target change and the gap between the actual federal funds rate and its targeted value were also statistically significant explanatory variables. Estimations were performed using Ordinary Least Squares (OLS), censored regression and two types of ordered probit; but the results proved to be robust regardless of the statistical technique used.

Suggested Citation

  • Randall Kesselring & Dale Bremmer, 2011. "Setting the target for the federal funds rate: the determinants of Fed behaviour," Applied Economics, Taylor & Francis Journals, vol. 43(11), pages 1341-1349.
    • Handle: RePEc:taf:applec:v:43:y:2011:i:11:p:1341-1349
    DOI: 10.1080/00036840802600459
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    References listed on IDEAS

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    1. Daniel L. Thornton, 2000. "The relationship between the federal funds rate and the Fed's federal funds rate target: is it open market or open mouth operations?," Working Papers 1999-022, Federal Reserve Bank of St. Louis.
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