A Federal Funds Rate Equation

45 Pages Posted: 15 Nov 2012

See all articles by Yash P. Mehra

Yash P. Mehra

Federal Reserve Banks - Federal Reserve Bank of Richmond

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 1995

Abstract

This paper presents evidence that indicates that U.S. interest rate policy during most of the 1980s can be described by a reaction function in which the federal funds rate rises if real GDP rises above trend GDP, if actual inflation accelerates, or if the long-term bond rate rises. Money growth when included in the reaction function is significant, indicating that money also influenced policy. The results presented here however indicate that in recent years the Fed has discounted the leading indicator properties of money. In contrast, the bond rate has been a key determinant of the funds rate during the period 1979 to 1992.

Suggested Citation

Mehra, Yash P., A Federal Funds Rate Equation (May 1, 1995). Federal Reserve Bank of Richmond Working Paper No. 95-3, Available at SSRN: https://ssrn.com/abstract=2127296 or http://dx.doi.org/10.2139/ssrn.2127296

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