US Monetary Police 1988-2004: An Empirical Analysis

Anders Møller Christensen and Heino Bohn Nielsen
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Anders Møller Christensen: Danmarks Nationalbank
Heino Bohn Nielsen: Institute of Economics, University of Copenhagen

No 2005/01, FRU Working Papers from University of Copenhagen. Department of Economics. Finance Research Unit

Abstract: Relationships between the Federal funds rate, unemployment, inflation, and the long-term government-bond rate are investigated with cointegration techniques. We find a stable long-term relationship between the Federal funds rate, unemployment, and the bond rate. This relationship is interpretable as a policy target because deviations are corrected primarily via the Federal funds rate. A traditional Taylor-type rule is clearly rejected by the data. Inflation does thus only influence the instrument indirectly via the bond rate, but we find that inflation is controllable with the Federal funds rate. The results are in accordance with recent developments in monetary theory stressing management of expectations as an important transmission channel.

Keywords: cointegration; equilibrium correction; monetary policy; Taylor rule; Bond rate (search for similar items in EconPapers)
JEL-codes: C32 E52 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2005-02
New Economics Papers: this item is included in nep-cba, nep-fmk, nep-mac and nep-mon
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