Adding Double Inertia to Taylor Rules to Improve Accuracy

Charles Carlstrom and Timothy Fuerst

Economic Commentary, 2014, issue May

Abstract: A Taylor rule captures the historical behavior of the federal funds rate better when it also includes a partial-adjustment factor. Typically, the type of partial adjustment added is consistent with the FOMC avoiding large jumps in the level of the funds rate. We add another type of partial adjustment?consistent with the FOMC avoiding changes in the pace of change?and improve the rule?s historical fit.

Date: 2014
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