The Evolution of U.S. Monetary Policy: 2000 - 2007
A vector autoregression with time-varying parameters is used to characterize changes in Federal Reserve policy that occurred from 2000 through 2007 and describe how they affected the performance of the U.S. economy. Declining coefficients in the model’s estimated policy rule point to a shift in the Fed’s emphasis away from stabilizing inflation over this period. More importantly, however, the Fed held the federal funds rate persistently below the values prescribed by this rule. Under this more discretionary policy, inflation overshot its target and the funds rate followed a path reminiscent of the "stop-go" pattern that characterized Fed behavior prior to 1979.
The authors would like to thank an Associate Editor and two anonymous referees for extremely helpful comments on an earlier draft of this paper. Neither author received any external support for, or has any financial interest that relates to, the research described here. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Michael T. Belongia & Peter N. Ireland, 2016. "The evolution of U.S. monetary policy: 2000–2007," Journal of Economic Dynamics and Control, vol 73, pages 78-93. citation courtesy of