A federal funds rate equation

Yash P. Mehra

No 95-03, Working Paper from Federal Reserve Bank of Richmond

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 trend 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. In contrast, the bond rate has been a key determinant of the funds rate during the period 1979 to 1992.

Keywords: Federal; funds (search for similar items in EconPapers)
Date: 1995
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