DP 2024/3 - El-Shagi, M.: Does the Fed Adhere to its Mandate? Estimating the Federal Reserve's Objective Function

Makram El-Shagi

CFDS Discussion Paper 2024/3


In this paper, we reinterpret a novel approach that was designed to assess policy optimality given a known objective function. In the spirit of Uhlig's "quantitative interpretation", we reverse engineer the results to allow the estimation of the objective function, assuming that the policymaker aims for optimality. We show, that the Fed - despite its dual mandate - places far greater weight on business cycle stabilization than on combating inflation.

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