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Taylor's rule and the Fed, 1970-1997


  • John P. Judd
  • Glenn D. Rudebusch


This paper estimates a simple model of the Federal Reserve's "reaction function" - that is, the relationship between economic developments and the fed's response to them. We focus on how this estimated reaction function has changed over time. Such changes are not surprising given compositional changes in the Federal Open Market Committee, and we consider three subsamples delineated by the terms of recent fed Chairmen. We find that the estimated reaction functions for each period vary in ways that seem broadly consistent with the success or failure during the period at controlling inflation. These results suggest that a Taylor-rule framework is a useful way to summarize key elements of monetary policy.

Suggested Citation

  • John P. Judd & Glenn D. Rudebusch, 1998. "Taylor's rule and the Fed, 1970-1997," Economic Review, Federal Reserve Bank of San Francisco, pages 3-16.
  • Handle: RePEc:fip:fedfer:y:1998:p:3-16:n:3

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    References listed on IDEAS

    1. Rudebusch, Glenn D, 1993. "The Uncertain Unit Root in Real GNP," American Economic Review, American Economic Association, vol. 83(1), pages 264-272, March.
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    7. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-921, September.
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    9. Flint Brayton & Peter A. Tinsley, 1996. "A guide to FRB/US: a macroeconomic model of the United States," Finance and Economics Discussion Series 96-42, Board of Governors of the Federal Reserve System (U.S.).
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    11. John P. Judd & Bharat Trehan, 1995. "Has the Fed gotten tougher on inflation?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue mar31.
    12. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
    13. Meltzer, Allan H, 1987. "Limits of Short-run Stabilization Policy: Presidential Address to the Western Economic Association, July 3, 1986," Economic Inquiry, Western Economic Association International, vol. 25(1), pages 1-14, January.
    14. Bennett T. McCallum, 1989. "Targets, Indicators, and Instruments of Monetary Policy," NBER Working Papers 3047, National Bureau of Economic Research, Inc.
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    16. John C. Williams, 2003. "Simple rules for monetary policy," Economic Review, Federal Reserve Bank of San Francisco, pages 1-12.
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