## Monetary Policy Rules and the U.S. Business Cycle: Evidence and Implications

_IMF Working Papers, September 1, 2004_

## Source details

**Canonical URL:** [Monetary Policy Rules and the U.S. Business Cycle: Evidence and Implications](https://www.imf.org/en/publications/wp/issues/2016/12/31/monetary-policy-rules-and-the-u-s-17633)

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## Bibliographic details
- Authors: Pau Rabanal
- Published: September 1, 2004
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451858020.001

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### Summary findings and approach
- Estimates Taylor-type interest rates for the United States allowing for both time and state dependence.
- Provides evidence that the coefficients of the Taylor rule change significantly over time.
- Uses a two-state switching regime model to explain Federal Reserve behavior over the business cycle.
- Analyzes implications of this type of policy in a small scale new Keynesian model.

### Regime-specific behavior of the Federal Reserve (empirical evidence)
- During expansions:
  - The Federal Reserve follows a rule characterized as inflation targeting.
  - There is a high degree of interest rate smoothing.
- During recessions:
  - The Federal Reserve targets output growth.
  - Policy is conducted in a more active manner.

### Analytical implications (modeling)
- The paper studies how time- and state-dependent Taylor-type rules affect macroeconomic dynamics using a small scale new Keynesian model.
- The analysis connects regime-dependent policy coefficients to differences in stabilization behavior across expansions and recessions.

### Subjects and keywords (as provided)
- Subject: Banking, Financial services, Inflation, Inflation targeting, Monetary policy, Prices, Production, Production growth, Real interest rates
- Keywords: core CPI inflation, demand shock, Fed chairman, Inflation, inflation dynamics, inflation equation, Inflation targeting, inflation volatility, monetary policy rule, Production growth, Real interest rates, stabilization trade, Switching Regime Models, Taylor Rule, Time-Varying Coefficients, WP

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/monetary-policy-rules-and-the-u-s-17633_