Make your own monetary policy
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Make your own monetary policy!
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Instructions: This model forecasts the federal funds rate from the present to Q4 2016. The inputs you set are your forecast for the unemployment rate and annual headline PCE inflation rate at the end of the next four years. The other two parameters are the expected federal funds rate at full employment and the rate's sensitivity to inflation and unemployment. A sensitivity of 1 means that the federal funds rate will rise 1 percentage point for every 1-percentage-point increase in inflation. The model is initially calibrated for the midpoint of FOMC forecasts as of the June 19 meeting and the best fit of a Mankiw/Taylor rule from 1997 to 2007. A copy of the default settings is available on the next sheet.
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DateUnemployment Rate
Headline PCE Inflation Rate
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Q4 201362
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Q4 201453
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Q4 201544
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Q4 201635
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Rate at Full Employment4.5
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Sensitivity to Inflation/Unemployment
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Underworkings