EconPapers    
Economics at your fingertips  
 

Economic projections and rules of thumb for monetary policy

Athanasios Orphanides () and Volker Wieland ()

Review, 2008, issue Jul, No v. 90, no. 4, 307-324

Abstract: Monetary policy analysts often rely on rules of thumb, such as the Taylor rule, to describe historical monetary policy decisions and to compare current policy with historical norms. Analysis along these lines also permits evaluation of episodes where policy may have deviated from a simple rule and examination of the reasons behind such deviations. One interesting question is whether such rules of thumb should draw on policymakers' forecasts of key variables, such as inflation and unemployment, or on observed outcomes. Importantly, deviations of the policy from the prescriptions of a Taylor rule that relies on outcomes may be the result of systematic responses to information captured in policymakers' own projections. This paper investigates this proposition in the context of Federal Open Market Committee (FOMC) policy decisions over the past 20 years, using publicly available FOMC projections from the semiannual monetary policy reports to Congress (Humphrey-Hawkins reports). The results indicate that FOMC decisions can indeed be predominantly explained in terms of the FOMC's own projections rather than observed outcomes. Thus, a forecast-based rule of thumb better characterizes FOMC decisionmaking. This paper also confirms that many of the apparent deviations of the federal funds rate from an outcome-based Taylor-style rule may be considered systematic responses to information contained in FOMC projections.

Keywords: Monetary; policy (search for similar items in EconPapers)
Date: 2008
References: Add references at CitEc
Citations: View citations in EconPapers (29) Track citations by RSS feed

Downloads: (external link)
https://files.stlouisfed.org/files/htdocs/publicat ... 08/07/Orphanides.pdf (application/pdf)

Related works:
Working Paper: Economic Projections and Rules-of-Thumb for Monetary Policy (2008) Downloads
Working Paper: Economic Projections and Rules-of-Thumb for Monetary Policy (2008) Downloads
Working Paper: Economic projections and rules-of-thumb for monetary policy (2008) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlrv:y:2008:i:jul:p:307-324:n:v.90no.4

Ordering information: This journal article can be ordered from
https://files.stloui ... htdocs/publications/

Access Statistics for this article

More articles in Review from Federal Reserve Bank of St. Louis Contact information at EDIRC.
Bibliographic data for series maintained by Anna Oates ().

 
Page updated 2019-10-20
Handle: RePEc:fip:fedlrv:y:2008:i:jul:p:307-324:n:v.90no.4