Searching for the FED's Reaction Function

Katrin Woelfel and Christoph Weber

No 154, Working Papers from Bavarian Graduate Program in Economics (BGPE)

Abstract: There is still some doubt about those economic variables that really matter for the FED’s decisions. In comparison to other estimations, this study uses the approach of Bayesian Model Averaging (BMA). The estimations show that over the long run in?ation, unemployment rates, and long-term interest rates are the crucial variables in explaining the Federal Funds Rate. In the other two estimation samples, also the federal de?cit and M2 were of relevance. In addition, we present the best models in more detail. Finally, a model average is constructed via BMA. The model average substantially outperforms a simple Taylor rule.

Keywords: FED; Monetary Policy Reaction Functions; Model Uncertainty; Bayesian Model Averaging (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2014-07
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Journal Article: Searching for the Fed’s reaction function (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:bav:wpaper:154_woelfelweber

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