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Federal Reserve Bank of Cleveland
Economic Commentary
Adding Double Inertia to Taylor Rules to Improve Accuracy
Charles T. Carlstrom
Timothy S. Fuerst
Abstract

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.


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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.
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