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The evolving role and definition of the federal funds rate in the conduct of U.S. monetary policy

Author

Listed:
  • Belongia, Michael
  • Hinich, Melvin

Abstract

Over the past twenty years, the federal funds rate has evolved from being an intermediate target or indicator variable in discussions of monetary policy to the Federal Reserve’s (exogenous) policy instrument. How the funds rate is characterized has important implications for modeling, particularly in settings such as the popular Taylor Rule. Crucially, however, little investigation has been done to examine whether the funds rate meets the conditions one would require for an instrument of policy. This paper offers empirical evidence on the relationships among the federal funds rate, variables that might influence its behavior and variables of interest to monetary policy.

Suggested Citation

  • Belongia, Michael & Hinich, Melvin, 2009. "The evolving role and definition of the federal funds rate in the conduct of U.S. monetary policy," MPRA Paper 18970, University Library of Munich, Germany, revised Aug 2009.
  • Handle: RePEc:pra:mprapa:18970
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    File URL: https://mpra.ub.uni-muenchen.de/18970/1/MPRA_paper_18970.pdf
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    References listed on IDEAS

    as
    1. Leonall C. Andersen & Denis S. Karnosky, 1977. "Some considerations in the use of monetary aggregates for the implementation of monetary policy," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 2-7.
    2. Brooks, Chris & Hinich, Melvin J., 1999. "Cross-correlations and cross-bicorrelations in Sterling exchange rates," Journal of Empirical Finance, Elsevier, vol. 6(4), pages 385-404, October.
    3. Gunnar Bardsen & Eilev S. Jansen & Ragnar Nymoen, 2003. "Econometric inflation targeting," Econometrics Journal, Royal Economic Society, vol. 6(2), pages 430-461, December.
    4. Mccallum, Bennet T., 1988. "Robustness properties of a rule for monetary policy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 173-203, January.
    5. Boschen, John F & Talbot, Kathleen E, 1991. "Monetary Base Growth, Deposit Growth, and Inflation in the Postwar United States," The Journal of Business, University of Chicago Press, vol. 64(3), pages 313-337, July.
    6. Brock, William A. & Sayers, Chera L., 1988. "Is the business cycle characterized by deterministic chaos?," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 71-90, July.
    7. Neftci, Salih N, 1984. "Are Economic Time Series Asymmetric over the Business Cycle?," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 307-328, April.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. There is nothing “unconventional” about money base control
      by Lars Christensen in The Market Monetarist on 2013-11-30 15:06:27

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    Cited by:

    1. Mohajeryami, Saeed, 2015. "Forecasting Feds Fund Rate: 1982-2014," MPRA Paper 67142, University Library of Munich, Germany.

    More about this item

    Keywords

    federal funds rate; monetary policy; causality tests; reserves;

    JEL classification:

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

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