Material Detail

In this exercise, students compute the federal funds rate target values of the Taylor (1993) monetary policy rule. The resulting data can be used to analyze policy during the various Federal Reserve regimes since 1970. For example, the Fed seemed to keep the inflation rate too low during the 1970s stagflation period, had a high target during the disinflation period of the 1980s, and may have kept the interest rate too low in the 2000s. The exercise replicates a key part of the Taylor (1993) paper and improves on it.

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