Abstract
An ordinal probit technique is employed on monthly data to explain discrete changes in the targeted Federal funds rate since August 1987. Changes in industrial production and precursors of final good inflation appear to have significant effects on the Federal Reserve's behavior, while consumer prices, unemployment, and other variables often thought to influence its actions do not. These results are robust to a variety of alternative specifications, including the use of greenbook forecasts and those derived from Taylor's Rule. The results suggest that the Federal Reserve seeks to stabilize output and preemptively control inflation before it reaches the consumer level.
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