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Does the Fed adhere to its mandate? Estimating the Federal Reserve’s objective function

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  • El-Shagi, Makram

Abstract

In this paper, we reinterpret a novel approach that was designed to assess policy optimality given a known objective function. In the spirit of Uhlig’s “quantitative interpretation”, we reverse engineer the results to allow the estimation of the objective function, assuming that the policymaker aims for optimality. We show, that the Fed – despite its dual mandate – places far greater weight on business cycle stabilization than on combating inflation.

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  • El-Shagi, Makram, 2025. "Does the Fed adhere to its mandate? Estimating the Federal Reserve’s objective function," Economic Analysis and Policy, Elsevier, vol. 87(C), pages 1782-1796.
    • Handle: RePEc:eee:ecanpo:v:87:y:2025:i:c:p:1782-1796
    DOI: 10.1016/j.eap.2025.06.009
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    1. Gabriel Montes-Rojas & Fernando Toledo & Nicol'as Bertholet & Kevin Corfield, 2025. "Implicit quantile preferences of the Fed and the Taylor rule," Papers 2510.24362, arXiv.org.

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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