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Article: A federal funds rate equation
- Article from:
- Economic Inquiry
- Article date:
- July 1, 1997
- Author:
CopyrightCopyright Western Economic Association Jul 1997. Provided by ProQuest LLC. (Hide copyright information)
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YASH R MEHRA*
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. (JEL ES)
I. INTRODUCTION
This paper estimates a monetary policy reaction function that explains the behavior of the federal funds rate during the ...