Wednesday, March 5, 2014

The Fed's effective unemployment rate target

I thought this would be an interesting way to present the model results from the previous post: if we use the effective Fed funds rate instead of the 3-month rate, what we'd get is an estimate of the effective Fed target unemployment rate. Here is the graph (actual unemployment rate in green, model result in red):

This puts a different spin on the mid-2000s peak. The Fed appears to be unsuccessfully trying to raise the unemployment rate from this perspective.

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Also, try to avoid the use of dollar signs as they interfere with my setup of mathjax. I left it set up that way because I think this is funny for an economics blog. You can use € or £ instead.