Are Federal Funds Rate Changes Consistent with Price Stability? Results from an Indicator Model
To answer this question, the authors investigate how well an inflation targeting model can explain monetary policy actions in the United States and how the implicit “target” rate of inflation appears to have evolved across time. The authors conclude that the model describes policy actions reasonably well, despite omitting policy concerns other than inflation. Hence, the adoption of formal inflation targets need not represent a drastic change in Federal Reserve operating procedure.