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Finding normal: natural rates and policy prescriptions

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  • Mary C. Daly
  • Fernanda Nechio
  • Benjamin Pyle

Abstract

Over the past several years, the Federal Open Market Committee?s longer-run forecasts of the short-term interest rate and unemployment rate have steadily declined. These forecasts reflect the Committee?s views about the levels of the policy interest rate and unemployment rate that will eventually prevail when the economy returns to normal. A simple monetary policy rule illustrates how the reductions in these forecasts can imply a lower projected path for the policy rate.

Suggested Citation

  • Mary C. Daly & Fernanda Nechio & Benjamin Pyle, 2015. "Finding normal: natural rates and policy prescriptions," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfel:00062
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    References listed on IDEAS

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    1. Cúrdia, Vasco & Ferrero, Andrea & Ng, Ging Cee & Tambalotti, Andrea, 2015. "Has U.S. monetary policy tracked the efficient interest rate?," Journal of Monetary Economics, Elsevier, vol. 70(C), pages 72-83.
    2. Taylor, John B., 1999. "The robustness and efficiency of monetary policy rules as guidelines for interest rate setting by the European central bank," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 655-679, June.
    3. John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1, July.
    4. Sylvain Leduc & Glenn D. Rudebusch, 2014. "Does slower growth imply lower interest rates?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
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