Measuring monetary policy inertia in target Fed funds rate changes
Recent research has grappled with an apparent paradox: Why would a central bank that is focused primarily on inflation control exhibit signs of inertia when making policy adjustments? In this article, Michael Dueker argues that fully characterizing the policy inertia is a precondition towards resolving the apparent paradox. This article presents empirical estimates of adjustments to the target fed funds rate that take into account two facets of policy inertia: a partial-adjustment mechanism and thresholds for making discrete changes to the target fed funds rate. With a more complete picture of the policy inertia, subsequent research can investigate whether policy appears to display either too much or the right amount of inertia.
Volume (Year): (1999)
Issue (Month): Sep ()
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References listed on IDEAS
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