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Disagreement between FOMC members and the Fed’s staff: New insights based on a counterfactual interest rate

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  • Bennani, Hamza
  • Kranz, Tobias
  • Neuenkirch, Matthias

Abstract

We examine the degree and sources of disagreement between the members of the Federal Open Market Committee (FOMC) and the Federal Reserve’s (Fed’s) staff about the appropriate policy rate for the period 1994–2012. For that purpose, we compute a recommended interest rate for the Fed’s staff based on its own Greenbook forecasts and a time-varying monetary policy rule à la Taylor (1993), and compare it with the actual target rate. First, we find that there has been internal disagreement between FOMC members and the Fed’s staff about the appropriate policy rate. Second, we reveal that members with an occupational background in finance favor a relatively more hawkish monetary policy. In addition, a preference towards a tighter monetary policy is found under a Democratic President and during Alan Greenspan’s tenure as the Fed’s Chairman. Finally, higher oil prices, a low degree of uncertainty, and episodes of financial stability are also associated with higher interest rates as compared to the Fed staff’s recommendation.

Suggested Citation

  • Bennani, Hamza & Kranz, Tobias & Neuenkirch, Matthias, 2018. "Disagreement between FOMC members and the Fed’s staff: New insights based on a counterfactual interest rate," Journal of Macroeconomics, Elsevier, vol. 58(C), pages 139-153.
  • Handle: RePEc:eee:jmacro:v:58:y:2018:i:c:p:139-153
    DOI: 10.1016/j.jmacro.2018.09.002
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    Keywords

    Disagreement; Federal open market committee; Federal reserve staff; Monetary policy; Taylor rule;

    JEL classification:

    • 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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