IDEAS home Printed from https://ideas.repec.org/a/pal/buseco/v49y2014i4p253-262.html
   My bibliography  Save this article

Is the Fed Funds Rate Still Effective?

Author

Listed:
  • John Silvia
  • Azhar Iqbal

Abstract

Both the depth and length of the Great Recession create the impression that the economy proved impervious to monetary policy. Policy rates, such as the federal funds rate (fed funds rate), were set at record lows, but the recovery in housing, employment, and GDP were subpar at best. Now with a self-sustaining expansion, the FOMC began rolling back its asset purchases program and, at some point in the future, it will start increasing its target for the fed funds rate. This raises the questions of whether the fed funds rate remains an effective tool and what effect an altered Federal Reserve balance sheet will have on inflation and the unemployment rate in the post-Great Recession world. Our econometric analysis suggests that since the 1990s, the traditional tools of monetary policy (such as the fed funds rate) may have influenced the unemployment rate but that it did not influence inflation. Thus, the effect a change in the fed funds rate may not be as straightforward as suggested by the conventional economic theory and the traditional link between interest rates and inflation and unemployment may have broken down.

Suggested Citation

  • John Silvia & Azhar Iqbal, 2014. "Is the Fed Funds Rate Still Effective?," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 49(4), pages 253-262, October.
  • Handle: RePEc:pal:buseco:v:49:y:2014:i:4:p:253-262
    as

    Download full text from publisher

    File URL: http://www.palgrave-journals.com/be/journal/v49/n4/pdf/be201432a.pdf
    File Function: Link to full text PDF
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: http://www.palgrave-journals.com/be/journal/v49/n4/full/be201432a.html
    File Function: Link to full text HTML
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pal:buseco:v:49:y:2014:i:4:p:253-262. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.palgrave-journals.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.