Abstract
The relatively recent (last few years) actions by the Federal Reserve and other economic factors have mitigated potential changes in unemployment rate. We examine the trends in economic inflation for the USA using the data and empirical models given in the recent paper by Yellen [1]. A new correlation for the inflation rate trend is developed based on Learning Theory. We may conclude that the Federal Reserve has learnt to control inflation rate via an implicit learning process, and has tempered the fluctuations in unemployment rate, which previously showed evidence of instability. The fluctuations and trends in unemployment do not show evidence of learning, and are fitted by a simple periodic dynamic expression with an underlying unemployment rate of 6.5%. Yellen [1] also discusses the role of “expectation” in forecasting and economic changes in policies and directions. This behavioral response to rule changes is clearly linked to the learning processes in society and by people, which are a fruitful topic for future research on economic predictions and for interpretive purposes.
Highlights
The Federal Reserve Inflation FormulaThe Federal Reserve effectively manages interest rates and monetary policy to ensure stable economic growth
The relatively recent actions by the Federal Reserve and other economic factors have mitigated potential changes in unemployment rate
We examine the trends in economic inflation for the USA using the data and empirical models given in the recent paper by Yellen [1]
Summary
The Federal Reserve effectively manages interest rates and monetary policy to ensure stable economic growth. The empirical relation for inflation forecasting was given as a running corrected yearly time series, subscript t, in annualized growth rates of total and core prices, πt and πtc respectively, for 1990 to 2014 (all the terms are as defined in [1]): πt = πtc + ωteRPIEt + ωtf RPIFt (1). Derived from differential data fitting [1], these constants directly affect the relative contributions of the influence of the economic factors: ωteRPIEt weighted annual growth rate of energy goods prices. The successful record of the Federal Reserve in combating inflation and unemployment using policy adjustments has resulted in recent historically low interest rate values. Assuming that the Federal Reserve and its advisors and staff act like any other body or people, we wondered if there was: 1) Any (perhaps hidden) evidence of learning in these trends; 2) A simpler forecasting or fitting equation
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