What Drives the Fed to Act?

Christian Weller ()

Journal of Post Keynesian Economics, 2002, vol. 24, issue 3, 391-417

Abstract: This paper studies the determinants of monetary policy since 1980 to see whether the Fed has truly followed an ad hoc approach, or whether some variables playa more important role in determining monetary policy than others. The results suggest that the Fed consistently responds to the unemployment rate, and that changes in the unemployment are the most important determinant of monetary policy. The results also indicate that the Fed responded, for some periods, to the real rate of return in the stock market, especially to lower the risk offinancial instabilities, rather than to control asset price inflation.

Date: 2002
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DOI: 10.1080/01603477.2002.11490332

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