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Policy Rules Consistent with the FOMC’s Longer-Run Goals and Monetary Policy Strategy

Author

Listed:
  • Papell David H.
  • Prodan Ruxandra

    (Department of Economics, University of Houston, Houston, USA)

Abstract

The Federal Open Market Committee’s revised Statement on Longer-Run Goals and Monetary Policy Strategy implements flexible average inflation targeting and mitigates shortfalls, rather than deviations, of employment from its maximum level. We show how the Taylor, balanced approach, and balanced approach (shortfalls) rules in the Monetary Policy Report could be modified to be consistent with the revised statement. Federal funds rate prescriptions from the consistent rules are both closer to the liftoff from the effective lower bound in December 2015 and provide a better fit to the actual federal funds rate than the rules currently included in the Report. The prescriptions from the balanced approach rules are closer to the liftoff and provide a better fit than the prescriptions from the Taylor rules.

Suggested Citation

  • Papell David H. & Prodan Ruxandra, 2022. "Policy Rules Consistent with the FOMC’s Longer-Run Goals and Monetary Policy Strategy," The Economists' Voice, De Gruyter, vol. 19(2), pages 125-138, December.
    • Handle: RePEc:bpj:evoice:v:19:y:2022:i:2:p:125-138:n:13
    DOI: 10.1515/ev-2022-0010
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    More about this item

    Keywords

    policy rules; forward guidance; monetary policy; federal reserve board; federal open market committee; federal funds rate;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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