Journal Article

Measuring monetary policy inertia in target Fed funds rate changes

Abstract: Recent research has grappled with an apparent paradox: Why would a central bank that is focused primarily on inflation control exhibit signs of inertia when making policy adjustments? In this article, Michael Dueker argues that fully characterizing the policy inertia is a precondition towards resolving the apparent paradox. This article presents empirical estimates of adjustments to the target fed funds rate that take into account two facets of policy inertia: a partial-adjustment mechanism and thresholds for making discrete changes to the target fed funds rate. With a more complete picture of the policy inertia, subsequent research can investigate whether policy appears to display either too much or the right amount of inertia.

Keywords: Federal funds rate; Monetary policy; Federal Open Market Committee;

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Review

Publication Date: 1999

Volume: 81

Issue: Sep

Pages: 3-10