Working Papers present research work by both Danmarks Nationalbank’s employees and our partners. Working Papers are primarily targeted at professionals and people with an interest in central banking research as well as economics and finance in a broader sense.

International economy

Has US Monetary Policy Followed the Taylor Rule? A Cointegration Analysis 1988-2002

Based on the equilibrium correction structure of a cointegrated vector autoregression it is rejected that US monetary policy 1988-2002 can be described by a traditional Taylor (1993) rule. Instead we find a stable long-term relationship between the Federal funds rate, the unemployment rate, and the long-term interest rate, with deviations from the long-term relation being corrected primarily via changes in Federal funds rate. This is taken as an indication that the FOMC sets interest rates with a view to activity and to expected inflation and other conditions available in financial markets.