Could the Fed Have Improved Price Stability?

Walter Waymeyer () and Donald S. Allen ()
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Donald S. Allen: Federal Reserve Bank of St. Louis

No 632, Computing in Economics and Finance 1999 from Society for Computational Economics

Abstract: A reaction function, an interest rate adjustment policy, is identified that might have improved price stability and reduced economic oscillations over the past several decades. The dynamic relationship between the Federal funds rate, the CPI, and a vector of macroeconomic variables is estimated. Time series from 1972 into 1998 are processed. The regulatory feedback rule results from a pole placement method. Out-of-sample forecast quality is documented. The model is described in terms of inter-variable elasticities. The control rule is defined as a feedback gain vector. Fruitful areas for further investigation or refinement are noted.

Date: 1999-03-01
New Economics Papers: this item is included in nep-mon
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