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Does the Fed Adhere to its Mandate? Estimating the Federal Reserve's Objective Function

Author

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  • Makram El-Shagi

    (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan)

Abstract

In this paper, we reinterpret a novel approach that was designed to assess policy optimality given a known objective function. In the spirit of Uhlig’s “quantitative interpretation†, we reverse engineer the results to allow the estimation of the objective function, assuming that the policymaker aims for optimality. We show, that the Fed – despite its dual mandate – places far greater weight on business cycle stabilization than on combating inflation.

Suggested Citation

  • Makram El-Shagi, 2024. "Does the Fed Adhere to its Mandate? Estimating the Federal Reserve's Objective Function," CFDS Discussion Paper Series 2024/3, Center for Financial Development and Stability at Henan University, Kaifeng, Henan, China.
    • Handle: RePEc:fds:dpaper:202403
    as

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    References listed on IDEAS

    as
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    5. Uhlig, Harald, 2022. "A Luna-tic Stablecoin Crash," CEPR Discussion Papers 17465, C.E.P.R. Discussion Papers.
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    More about this item

    Keywords

    monetary policy; objective function;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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