A Federal Funds Rate Equation

Yash P Mehra

Economic Inquiry, 1997, vol. 35, issue 3, 621-30

Abstract: This paper presents evidence that indicates that U.S. interest rate policy during most of the 1980s can be described by a reaction function in which the federal funds rate rises if real GDP rises above potential GDP, if actual inflation accelerates, or if the long-term bond rate rises. Money growth when included in the reaction function is significant, indicating that money also influenced policy. The results presented here, however, indicate that in recent years the Fed has discounted the leading indicator properties of money. Copyright 1997 by Oxford University Press.

Date: 1997
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