The long-term bond rate is cointegrated with the actual one-period inflation rate during two sample periods, 1961Q1 to 1979Q3 and 1961Q1 to 1995Q4. This result indicates that in the long run the bond rate and actual inflation move together. The nature of short-run dynamic adjustments between...

A Federal Reserve reaction function featured here predicts the actual path of the funds rate during most of the period from 1979 to 1997. The estimated function indicates that the Fed has been forward-looking, responding both to actual inflation and to the expected change in its future direction...