Alternative Strategies: How Do They Work? How Might They Help?

31 Pages Posted: 1 Sep 2020

See all articles by Jonas Arias

Jonas Arias

Federal Reserve Bank of Philadelphia

Martin Bodenstein

Board of Governors of the Federal Reserve System

Hess T. Chung

Board of Governors of the Federal Reserve System

Thorsten Drautzburg

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Andrea Raffo

Board of Governors of the Federal Reserve System

Date Written: August, 2020

Abstract

Several structural developments in the U.S. economy—including lower neutral interest rates and a flatter Phillips curve—have challenged the ability of the current monetary policy framework to deliver on the Federal Open Market Committee’s (FOMC) dual-mandate goals. This paper explores whether makeup strategies, in which policymakers seek to stabilize average inflation around the inflation target over some horizon, could strengthen the FOMC’s ability to fulfill its dual mandate. The quantitative analysis discussed here suggests that credible makeup strategies may provide some moderate stabilization gains. The practical implementation of these strategies, however, faces a number of challenges that would have to be surmounted for the full benefit of these strategies to be realized.

JEL Classification: E31, E52, E58

Suggested Citation

Arias, Jonas and Bodenstein, Martin and Chung, Hess T. and Drautzburg, Thorsten and Raffo, Andrea, Alternative Strategies: How Do They Work? How Might They Help? (August, 2020). FEDS Working Paper No. 2020-68, Available at SSRN: https://ssrn.com/abstract=3684672 or http://dx.doi.org/10.17016/FEDS.2020.068

Jonas Arias (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

10 N Independence Mall W
Philadelphia, PA 19106
United States

Martin Bodenstein

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Hess T. Chung

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
(20) 973-7484 (Phone)

Thorsten Drautzburg

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Andrea Raffo

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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