TY  - JOUR
AU  - Hamilton,James D.
AU  - Jorda,Oscar
TI  - A Model for the Federal Funds Rate Target
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7847
PY  - 2000
Y2  - August 2000
UR  - http://www.nber.org/papers/w7847
L1  - http://www.nber.org/papers/w7847.pdf
N1  - Author contact info:
James D. Hamilton
Department of Economics, 0508
University of California, San Diego
9500 Gilman Drive
La Jolla, CA 92093-0508
Tel: 858/534-5986
Fax: 858/534-7040
E-Mail: jhamilton@ucsd.edu

Òscar Jordà
Economic Research, MS 1130
Federal Reserve Bank of San Francisco
101 Market St.
San Francisco, CA 94105
E-Mail: oscar.jorda@sf.frb.org
AB  - This paper is a statistical analysis of the manner in which the Federal Reserve determines the level of the Federal funds rate target, one of the most publicized and anticipated economic indicators in the financial world. The analysis presents two econometric challenges: (1) changes in the target are irregularly spaced in time; (2) the target is changed in discrete increments of 25 basis points.  The contributions of this paper are: (1) to give a detailed account of the changing role of the target in the conduct of monetary policy; (2) to develop new econometric tools for analyzing time-series duration data; (3) to analyze empirically the determinants of the target. The paper introduces a new class of models termed autoregressive conditional hazard processes, which allow one to produce dynamic forecasts of the probability of a target change. Conditional on a target change, an ordered probit model produces predictions of the magnitude by which the Fed will raise or lower the Federal funds rate. By decomposing Federal funds rate innovations into target changes and nonchanges, we arrive at new estimates of the effects of a monetary policy shock.'
ER  -