There are many possible formulations of the Taylor rule. We consider two that use different measures of economic activity to which the Fed could react, the output gap and the growth rate of GDP, and investigate which captures past movements of the fed funds rate more closely. Looking at these...

Banks have long been required to hold reserves equal to a percentage of their net transactions accounts (checkable deposits, for example), but until recently, they earned no interest on those reserves. The Fed now pays interest on required and excess reserve balances, having been granted the...

When inflation-indexed Treasury securities were first introduced, economists hoped that they could be used to measure expected inflation easily. The only difference between securities that were indexed to inflation and those that were not was thought to be the extra compensation regular...

The Taylor rule, which once was mentioned only in scholarly economics journals, now is popping up regularly in newsmagazines, finance journals, and central bankers' speeches. Does the Fed follow the rule? Should it? This Commentary explains what the Taylor rule is, discusses why it seems to...

Monetary policymakers look to the Phillips curve—an expression of the relationship between inflation and the degree to which the economy is operating relative to its potential—for information about the cost of actions undertaken to lower inflation. Recent estimations of the curve suggest it...

Monetary policy rules help central banks exercise the discipline necessary to achieve their long-term goals. The type of rule many banks are turning to these days is inflation targeting, which has several advantages. But because banks base their actions on forecasts of future inflation,...

Recessions are associated with both rising oil prices and increases in the federal funds rate. Are recessions caused by the spikes in oil prices or by the sharp tightening of monetary policy? The authors discuss how to disentangle these two effects.

There has been a remarkable increase in the FOMC’s communication over the last decade. Perhaps the most dramatic change was the inclusion of language indicating the possible direction of future policy. One example is the now famous “considerable-period” language that was inserted in August...

An argument that the Federal Reserve System's current approach to seasonal cycles--pegging the nominal interest rate--could successfully be applied to the business cycle as well.

When stock market values fall, we know that investors expect lower economic growth in the future. But can stock market declines actually affect future growth? There is some evidence that they can-through the credit channel.