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The Federal Reserve's Dual Mandate: A Time-Varying Monetary Policy Priority Index for the United States

René Lalonde and Nicolas Parent

Staff Working Papers from Bank of Canada

Abstract: In the United States, the Federal Reserve has a dual mandate of promoting stable inflation and maximum employment. Since the Fed directly controls only one instrument-the federal funds rate-the authors argue that the Fed's priorities continuously alternate between inflation and economic activity. In this paper, the authors assume that the effective weights put by the Fed on different indicators vary over time. To test this assumption, they estimate a monetary policy priority index by adding non-linear endogenous weights to a conventional Taylor-type rule.

Keywords: Monetary policy framework; Monetary policy implementation; Econometric and statistical methods (search for similar items in EconPapers)
JEL-codes: C22 C52 E52 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2006
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:06-11

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