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Taylor's rule and the Fed, 1970-1997

1998; Taylor & Francis; Linguagem: Inglês

1532-4168

John P. Judd, Glenn D. Rudebusch,

Economic theories and models

This paper estimates a simple model of the Federal Reserve's - that is, the relationship between economic developments and the fed's response to them. We focus on how this estimated reaction function has changed over time. Such changes are not surprising given compositional changes in the Federal Open Market Committee, and we consider three subsamples delineated by the terms of recent fed Chairmen. We find that the estimated reaction functions for each period vary in ways that seem broadly consistent with the success or failure during the period at controlling inflation. These results suggest that a Taylor-rule framework is a useful way to summarize key elements of monetary policy.