Estimated rules for monetary policy

George Kahn ()

Economic Review, 2012, vol. 97, issue Q IV

Abstract: Estimated policy rules describe how monetary policy has responded in the past to key economic indicators. Such rules can be used to evaluate past decisions and help guide the appropriate path for current policy. ; However, there may be unique features of a given economic situation?such as the current binding zero lower bound on interest rates and the desire to manage downside risk to economic activity?that warrant flexibility in following any rule based on past performance. ; Kahn estimates what rules best describe past monetary policies that coincided with periods of favorable economic performance. A rule placing somewhat greater weight on inflation than on output in determining a setting for the federal funds rate describes policy well over these periods and could be a useful guide in the future.

Date: 2012
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