Monetary Policy Rules and the U.S. Business Cycle: Evidence and Implications
Electronic Access:
Free Download. Use the free Adobe Acrobat Reader to view this PDF file
Summary:
This paper estimates Taylor-type interest rates for the United States allowing for both time and state dependence. It provides evidence that the coefficients of the Taylor rule change significantly over time, and that the behavior of the Federal Reserve over the cycle can be explained using a two-state switching regime model. During expansions, the Federal Reserve follows a rule that can be characterized as inflation targeting with a high degree of interest rate smoothing. During recessions, the Federal Reserve targets output growth and conducts policy in a more active manner. The implications of conducting this type of policy are analyzed in a small scale new Keynesian model.
Series:
Working Paper No. 2004/164
Subject:
Banking Financial services Inflation Inflation targeting Monetary policy Prices Production Production growth Real interest rates
English
Publication Date:
September 1, 2004
ISBN/ISSN:
9781451858020/1018-5941
Stock No:
WPIEA1642004
Pages:
27
Please address any questions about this title to publications@imf.org