Linear Regression - Estimation by Least Squares Dependent Variable FEDFUNDS Quarterly Data From 1988:01 To 2008:04 Usable Observations 84 Degrees of Freedom 81 Centered RA2 0. 7936672 R-Bar^2 0. 7885726 Uncentered RAZ 0. 9628258 Mean of Dependent Variable 4.6488888889 Std Error of Dependent Variable 2. 1924192950 Standard Error of Estimate 1. 0081014466 Sum of Squared Residuals 82.317750656 Regression F(2, 81) 155.7849 Significance Level of F 0. 0000000 Log Likelihood -118.3412 Durbin-Watson Statistic 0.1755 Variable Coeff Std Error T-Stat Signif ********$* 1. Constant 0. 727699394 0. 316386533 2. 30003 0.02401979 2. INF 1.763356168 0.126879559 13. 89787 0.00000000 3 UGAP -1. 720940798 0. 132694311 -12.96921 0.00000000 Linear Regression - Estimation by Least Squares Dependent Variable FEDFUNDS Quarterly Data From 2016:01 To 2019:04 Usable Observations 16 Degrees of Freedom 13 Centered R^2 0. 8850785 R-Bar^2 0. 8673982 Uncentered RAZ 0.9738760 Mean of Dependent Variable 1. 3466666667 Std Error of Dependent Variable 0.7543856956 Standard Error of Estimate 0.2747059893 Sum of Squared Residuals 0. 9810239476 Regression F(2, 13) 50. 0603 Significance Level of F 0. 0000008 Log Likelihood -0. 3690 Durbin-Watson Statistic 0. 8494 Variable Coeff Std Error T-Stat Signif ************ * * * * 1. Constant 0. 638244502 0. 708798015 0. 90046 0.38425322 2. INF 0.022455700 0.429881559 0. 05224 0.95913405 3. UGAP -1. 621488140 0. 189187978 -8.57078 0.00000104We have modeled monetary policy as being governed by a rule that describes the interest rate setting process as a central bank response to ination. This is a simplified Taylor rule. A more complete Taylor rule includes an output gap or unemployment gap component. Rudebush (2009) describes the rule as: A rough guideline for setting the federal funds rate that captures the Fed's behavior over the past two decades is provided by a simple equation that relates the funds rate to the inflation and unemployment rates. This equation is obtained by a statistical regression of the funds rate on the inflation rate and on the gap between the unemployment rate and the Congressional Budget Office's estimate of the natural, or normal, rate of unemployment. The resulting empirical policy rule of thumba so-called Taylor rulerecommends lowering the funds rate by 1.3 percentage points if core inflation falls by one percentage point and by almost two percentage points if the unemployment rate rises by one percentage point. This translates into a regression equation: it = 31 + 32\": + 33011: 11;) + 5t (1) Where i, is the federal funds rate (FEDFUNDS), 1?: is core inflation (computed from the price index JCXFE), ut is the unemployment rate (UNFIATE), and u; is the natural rate of unemployment (NFtOU). The monetary policy rule might produce a negative interest rate, but he Fed cannot set interest rates (significantly) below zero. This was the case in the most recent recession. In such circumstances, the policy makers must find afternative ways to ease nancial conditions and support economic activity