Working Paper: CEPR ID: DP12768
Authors: Stefan Gerlach; Rebecca Stuart
Abstract: The FOMC’s “dot plots” contain members’ views regarding what federal funds rate will be necessary in the end of this and the coming years for the FOMC to achieve its statutory objectives. The dots can be interpreted as instantaneous forward rates. We fit a curve, which is characterised by four parameters, through them and study how it moves with the economy. We find that the level of the federal funds rate the month before the FOMC meeting, the unemployment rate and (updated) estimates by Laubach and Williams (2003) of the natural real interest rate shape the curves.
Keywords: Federal Reserve; Monetary Policy; Interest Rate Expectations
JEL Codes: E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| macroeconomic conditions (E66) | parameters of the logistic function (C25) |
| unemployment rate (J64) | fourth parameter (time until half of adjustment is completed) (C41) |
| natural real interest rate estimates (E43) | second parameter (long-run interest rate expectations) (E43) |
| federal funds rate (previous month) (E52) | first parameter (effective federal funds rate) (E43) |
| parameters of the logistic function (C25) | interest rate expectations (E43) |