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US Monetary Police 1988-2004: An Empirical Analysis


  • Anders Møller Christensen

    (Danmarks Nationalbank)

  • Heino Bohn Nielsen

    (Institute of Economics, University of Copenhagen)


Relationships between the Federal funds rate, unemployment, inflation, and the long-term government-bond rate are investigated with cointegration techniques. We find a stable long-term relationship between the Federal funds rate, unemployment, and the bond rate. This relationship is interpretable as a policy target because deviations are corrected primarily via the Federal funds rate. A traditional Taylor-type rule is clearly rejected by the data. Inflation does thus only influence the instrument indirectly via the bond rate, but we find that inflation is controllable with the Federal funds rate. The results are in accordance with recent developments in monetary theory stressing management of expectations as an important transmission channel.

Suggested Citation

  • Anders Møller Christensen & Heino Bohn Nielsen, 2005. "US Monetary Police 1988-2004: An Empirical Analysis," FRU Working Papers 2005/01, University of Copenhagen. Department of Economics. Finance Research Unit.
  • Handle: RePEc:kud:kuiefr:200501

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    References listed on IDEAS

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    More about this item


    cointegration; equilibrium correction; monetary policy; Taylor rule; Bond rate;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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