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An Examination of Federal Reserve Behavior: An Applied Reaction Function Approach

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  • Sundell, Paul A.

Abstract

Federal Reserve behavior and interest rates are crucial determinants of the general well-being of the agricultural sector. This report investigates the factors that have influenced Federal Reserve policy and ultimately the level of interest rates. The author develops a partial adjustment model for the Federal funds rate and documents improved forecasting performance in comparison to competing models on an in-sample and out-of-sample basis. The author attributes the improved forecasting performance to the inclusion of international variables, a domestic banking default risk proxy, and slope dummy variables that capture shifts over time in the Federal Reserve's reaction to the unemployment rate and deviations in M1 from target.

Suggested Citation

  • Sundell, Paul A., 1990. "An Examination of Federal Reserve Behavior: An Applied Reaction Function Approach," Staff Reports 278322, United States Department of Agriculture, Economic Research Service.
    • Handle: RePEc:ags:uerssr:278322
    DOI: 10.22004/ag.econ.278322
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    References listed on IDEAS

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    Cited by:

    1. Sundell, Paul & Denbaly, Mark, 1992. "Modeling Long-Term Government Bond Yields: An Efficient Market Approach," Staff Reports 278623, United States Department of Agriculture, Economic Research Service.

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