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Double Inertia, Taylor Rules, and Monetary Policy Gradualism

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Abstract

In recent decades, an empirically estimated double-inertial rule fits the path of changes in the federal funds rate better than a standard inertial Taylor rule. Inertial Taylor rules aim to capture monetary policy gradualism via slow adjustments in the level of the policy rate. Double-inertial rules build on this specification by also gradually adjusting the pace of change in the policy rate. Because a double-inertial rule explains more than twice the variation of changes in the policy rate than its standard inertial counterpart, we argue that practitioners should consider a double-inertial rule when characterizing U.S. monetary policy.

Suggested Citation

  • Edmund Crawley & William Goodwin & Margaret M. Jacobson & Fabian Winkler, 2026. "Double Inertia, Taylor Rules, and Monetary Policy Gradualism," Finance and Economics Discussion Series 2026-036, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:103380
    DOI: 10.17016/FEDS.2026.036
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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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