Adding Double Inertia to Taylor Rules to Improve Accuracy

A Taylor rule captures the historical behavior of the federal funds rate better when it also includes a partial-adjustment factor. Typically, the type of partial adjustment added is consistent with the FOMC avoiding large jumps in the level of the funds rate. We add another type of partial adjustment—consistent with the FOMC avoiding changes in the pace of change—and improve the rule’s historical fit.

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Year of publication:	2014
Authors:	Carlstrom, Charles ; Fuerst, Timothy S.
Published in:	Economic Commentary. - Federal Reserve Bank of Cleveland. - 2014, May, 8
Publisher:	Federal Reserve Bank of Cleveland

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Extent:	application/pdf
Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10011249442