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Interest Rates, Inflation, and Federal Reserve Policy Since 1980

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  • Peter N. Ireland

    (Boston College)

Abstract

This paper characterizes Federal Reserve policy since 1980 as one that actively manages short-term nominal interest rates in order to control inflation and evaluates this policy using a dynamic, stochastic, sticky-price model of the United States economy. The results show that the Fed's policy insulates aggregate output from the effects of exogenous demand-side disturbances and, by calling for a modest but persistent reduction in short-term interest rates following a positive technology shock, helps the economy to respond to supply-side disturbances as it would in the absence of nominal rigidities.

Suggested Citation

  • Peter N. Ireland, 1999. "Interest Rates, Inflation, and Federal Reserve Policy Since 1980," Boston College Working Papers in Economics 419, Boston College Department of Economics.
    • Handle: RePEc:boc:bocoec:419
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    References listed on IDEAS

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    More about this item

    Keywords

    Interest Rates; Inflation; Federal Reserve;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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