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Does the Federal Reserve Lexicographically Order Its Policy Objectives?

Author

Listed:
  • David R. Hakes

    (University of Northern Iowa)

  • Edward N. Gamber

    (Lafayette College)

  • Chung-Hua Shen

    (National ChengChi University)

Abstract

We test a Federal Reserve reaction function for threshold effects among the Fed's policy objectives. We find evidence that the Fed responds with greater intensity to a policy objective when that policy objective moves beyond acceptable bounds. We also find that the Fed only responds to lesser objectives when its primary, or threshold, objective is within acceptable bounds--a behavior which can be described as lexicographic ordering. Finally, our results suggest that Fed policy is becoming increasingly responsive to inflation and less responsive to unemployment.

Suggested Citation

  • David R. Hakes & Edward N. Gamber & Chung-Hua Shen, 1998. "Does the Federal Reserve Lexicographically Order Its Policy Objectives?," Eastern Economic Journal, Eastern Economic Association, vol. 24(2), pages 195-206, Spring.
    • Handle: RePEc:eej:eeconj:v:24:y:1998:i:2:p:195-206
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    More about this item

    Keywords

    Fed; Policy;

    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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