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A Federal Funds Rate Equation, Working Paper 95-03

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A Federal Funds Rate Equation, Working Paper 95-03

DATE: May 1995

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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.

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Mehra, Yash P. (Yash Pal). "A Federal Funds Rate Equation, Working Paper 95-03," Working Papers (Federal Reserve Bank of Richmond) (May 1995). https://fraser.stlouisfed.org/title/3942/item/477063, accessed on May 4, 2024.

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NOTE: This is a preprint of an article which appeared in Economic Inquiry, vol. XXXV, No. 3, July 1997

PUBLISHER: Federal Reserve Bank of Richmond

PLACE: Richmond

DIGITAL COPY SOURCE: Federal Reserve Bank of Richmond

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RIGHTS: In Copyright (InC)

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