Accommodating monetary policy

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This program explores the structure of markets and institutions operating in the financial sector.Research builds on the work of the late Distinguished Scholar Hyman P.The Fed should decrease the federal funds rate if the opposite occurs.If inflation and the unemployment rate are both higher or lower than their respective target/natural levels, then the Fed must weigh how far each is from its desired level.The "Taylor rule" describes how economic conditions influence the Fed's policy rate to allow it to achieve the mandate.According to the Taylor rule, the Fed should increase the federal funds rate if inflation is higher than its target level or if unemployment is lower than the natural rate.Recent research has concentrated on the structure of financial markets and institutions, with the aim of determining whether financial systems are still subject to the risk of failing.Issues explored include the extent to which domestic and global economic events (such as the crises in Asia and Latin America) coincide with the types of instabilities Minsky describes, and involve analyses of his policy recommendations for alleviating instability and other economic problems.

Panel A of the figure plots the policy rates for five major central banks: the Bank of Canada, the Federal Reserve, the Bank of Japan, the European Central Bank (ECB), and the Bank of England.The policy rates rise and fall with the state of the business cycle.Also, although recent episodes of near-zero interest rates have been driven by aggressive responses from central banks to the Financial Crisis of 2008-09, policy rates declined persistently from 1998 to 2018.Congress has mandated the Federal Reserve to stabilize inflation and attain maximum employment.In the 1980s, the Federal Reserve began to target the federal funds rate—an interbank lending rate—to achieve these goals.

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