Actual Federal Reserve Policy Behavior and Interest Rate Rules

12 Pages Posted: 10 Nov 2005

See all articles by Ray C. Fair

Ray C. Fair

Yale University - Cowles Foundation; Yale School of Management - International Center for Finance

Abstract

A popular way to approximate Federal Reserve policy is through the use of estimated interest rate equations, or policy rules. In these rules, the dependent variable is the interest rate that the Federal Reserve is assumed to control and the explanatory variables are those factors assumed to affect Federal Reserve behavior. This article presents estimates of such a rule, using data from 1954:1-1999:3 but omitting the 1979:4-1982:3 period, when monetary targets were emphasized. Although the estimated coefficient on inflation is found to be larger in the post-1982 period, the difference is not statistically significant, and statistical tests fail to reject the hypothesis that the interest rate rule is stable across these two periods.

Keywords: monetary policy, reaction functions

JEL Classification: E0, E5

Suggested Citation

Fair, Ray C., Actual Federal Reserve Policy Behavior and Interest Rate Rules. Economic Policy Review, Vol. 7, No. 1, March 2001. Available at SSRN: https://ssrn.com/abstract=844247

Ray C. Fair (Contact Author)

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States
203-432-3715 (Phone)
203-432-6167 (Fax)

HOME PAGE: http://fairmodel.econ.yale.edu

Yale School of Management - International Center for Finance ( email )

Box 208200
New Haven, CT 06520
United States
203-432-3715 (Phone)
203-432-6167 (Fax)

HOME PAGE: http://fairmodel.econ.yale.edu

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