Monetary Policy Strategies for the Federal Reserve

“Monetary Policy Strategies for the Federal Reserve,” prepared for the conference Monetary Policy Strategy, Tools, and Communication Practices—A Fed Listens Event, Federal Reserve Bank of Chicago, June 4–5, 2019. Paper. Video (my presentation starts 3 min 5 sec into the session).


The paper finds that the general monetary policy strategy of “forecast targeting” is more suitable for fulfilling the Federal Reserve’s dual mandate of maximum employment and price stability than following a Taylor-type rule. Forecast targeting can be used for any of the more specific strategies of annual-inflation targeting, price-level targeting, temporary price-level targeting, and average-inflation targeting. The specific strategies are examined and evaluated according to how well they may fulfill the dual mandate, considering the possibilities of a binding effective lower bound for the federal funds rate and a flatter Phillips curve. Average inflation targeting is found to have some advantages over the others.