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"Actual Federal Reserve Policy Behavior and Interest Rate Rules," FRBNY Economic Policy Review, March 2001, 61-72.
pdf file (130KB).


Several studies have attempted tomodel how the Federal Reserve makes policy choices affecting interest rates. These studies have yielded "rules" relating the interest rate that the Fed is assumed to control to a set of variables thought to affect Fed policy behavior.

Many of these studies conclude that interest rate rules do not have stable coefficient estimates over time---a finding that suggests structural change in the Fed's policy behavior.

A specification of an interest rate rule, estimated over the 1954:1-1979:3 and the 1982:4-1999:3 periods, does pass a stability test.

Nevertheless, the results show a large economic difference in the coefficient on inflation between the first and second periods, and the relatively restrained behavior of inflation in recent years makes it hard to determine whether there has been a structural break.


Some people find the stability result in this paper surprising. If you would like to experiment yourself, the data and code that were used for this paper can be downloaded by clicking: Estimated rulea. Once you download the file, unzip it. The data, including the data needed for the first stage regressors, are in FMRULEA.DAT. The Fair-Parke commands that are needed to obtain the results are in FMRULEA.INP. The output from running the commands is in FMRULEA.OUT. If you download the FP program, you can duplicate the results in FMRULEA.OUT and then run other tests if you wish.