Federal Reserve Bank of Cleveland
Adding Double Inertia to Taylor Rules to Improve Accuracy
A Taylor rule captures the historical behavior of the federal funds rate better when it also includes a partial-adjustment factor. Typically, the type of partial adjustment added is consistent with the FOMC avoiding large jumps in the level of the funds rate. We add another type of partial adjustment—consistent with the FOMC avoiding changes in the pace of change—and improve the rule’s historical fit.
Cite this item
Charles T. Carlstrom & Timothy S. Fuerst, "Adding Double Inertia to Taylor Rules to Improve Accuracy"
, Federal Reserve Bank of Cleveland, Economic Commentary, issue May, 2014.
This item with handle RePEc:fip:fedcec:00012
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