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Racial disparities and monetary policy: Evidence from augmented Taylor rules

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  • Ume, Ejindu S.

Abstract

This paper examines whether extending the Taylor rule to incorporate racial unemployment disparities enhances its explanatory power for U.S. monetary policy from 1975 to 2007. Using quarterly data on federal funds rates, inflation, and unemployment rates by race, the analysis contrasts traditional Taylor rule specifications with models that include Black/White and Black/Overall unemployment ratios and gaps. The results demonstrate that accounting for racial disparities improves the fit of the model and the explanatory power, suggesting that racial unemployment gaps may serve as useful information variables that help the Fed assess overall labor market slack.

Suggested Citation

  • Ume, Ejindu S., 2025. "Racial disparities and monetary policy: Evidence from augmented Taylor rules," Economics Letters, Elsevier, vol. 257(C).
    • Handle: RePEc:eee:ecolet:v:257:y:2025:i:c:s0165176525005294
    DOI: 10.1016/j.econlet.2025.112692
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    References listed on IDEAS

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    1. Bennani, Hamza, 2023. "Effect of monetary policy shocks on the racial unemployment rates in the US," Economic Systems, Elsevier, vol. 47(1).
    2. Alina K. Bartscher & Moritz Kuhn & Moritz Schularick & Paul Wachtel, 2022. "Monetary Policy and Racial Inequality," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 53(1 (Spring), pages 1-63.
    3. Thorbecke, Willem, 2001. "Estimating the effects of disinflationary monetary policy on minorities," Journal of Policy Modeling, Elsevier, vol. 23(1), pages 51-66, January.
    4. William M. Rodgers, 2008. "African American and White Differences in the Impacts of Monetary Policy on the Duration of Unemployment," American Economic Review, American Economic Association, vol. 98(2), pages 382-386, May.
    5. Seth B. Carpenter & William M. Rodgers III, 2004. "The disparate labor market impacts of monetary policy," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 23(4), pages 813-830.
    6. Kuhelika De & Ryan A. Compton & Daniel C. Giedeman & Gary A. Hoover, 2021. "Macroeconomic shocks and racial labor market differences," Southern Economic Journal, John Wiley & Sons, vol. 88(2), pages 680-704, October.
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    Keywords

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Systems; Standards; Regimes; Government and the Monetary System
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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