Does the Federal Reserve Lexicographically Order Its Policy Objectives?

David Hakes, Edward Gamber and Chung-Hua Shen
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David Hakes: University of Northern Iowa
Edward Gamber: Lafayette College
Chung-Hua Shen: National ChengChi University

Eastern Economic Journal, 1998, vol. 24, issue 2, 195-206

Abstract: We test a Federal Reserve reaction function for threshold effects among the Fed's policy objectives. We find evidence that the Fed responds with greater intensity to a policy objective when that policy objective moves beyond acceptable bounds. We also find that the Fed only responds to lesser objectives when its primary, or threshold, objective is within acceptable bounds--a behavior which can be described as lexicographic ordering. Finally, our results suggest that Fed policy is becoming increasingly responsive to inflation and less responsive to unemployment.

Keywords: Fed; Policy (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 1998
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Persistent link: https://EconPapers.repec.org/RePEc:eej:eeconj:v:24:y:1998:i:2:p:195-206

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