The Fed ' s real reaction function : monetary policy , inflation , unemployment , inequality and presidential politics

@inproceedings{Russo2007TheF,
  title={The Fed ' s real reaction function : monetary policy , inflation , unemployment , inequality and presidential politics},
  author={James J. Russo},
  year={2007}
}
Using a VAR model of the American economy from 1984 to 2003 we find that, contrary to official claims, the Federal Reserve does not target inflation or react to “inflation signals.” Rather, the Fed reacts to the very “real” signal sent by unemployment; in a way that suggests that a baseless fear of full employment is a principal force behind monetary policy. Tests of variations in the workings of a Taylor Rule, using dummy variable regressions, on data going back to 1969 suggest that after 1983… CONTINUE READING