We test a Federal Reserve reaction function for threshold effects among the Fed's policy objectives. We find evidence that the Fed responds with greater intensity to a policy objective when that policy objective moves beyond acceptable bounds. We also find that the Fed only responds to lesser...

We reject the hypothesis that the Federal Reserve’s response to the macroeconomy over the period of 1953–1994 can be accurately represented with a fixed-parameter discrete choice model. Thus, we model the Fed’s time-varying response with a nonlinear Kalman filter. The estimated time paths...