Monetary policy rules and inflation control in the US

Maria Eleftheriou and Georgios Kouretas

Economic Modelling, 2023, vol. 119, issue C

Abstract: The interplay between policy-setting by the Federal Reserve and inflation is explored during a period with significant and diverse episodes from 1979 onwards. Our unrestricted estimates reveal a stable target path for the policy rate with a strong response to inflation and an effective control over it. We identify moments of discretionary and rule-based policy-making throughout three different chairmanships and quantify the degree of policy inertia. Including the ‘great recession’ and the first years after the crisis leaves the above-mentioned characteristics unchanged and shows that the adjustment to deviations from the target path becomes less gradual. Replacing the federal funds rate with a shadow rate yields ineffective inflation control, indicating that the dynamic behaviour of inflation is affected by the implementation of unconventional policy when the zero lower bound applies.

Keywords: Monetary policy; Federal reserve; Taylor rule; Cointegration; VEC model (search for similar items in EconPapers)
JEL-codes: C32 E52 E58 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:119:y:2023:i:c:s0264999322003741

DOI: 10.1016/j.econmod.2022.106137

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