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Monetary Policy and Asset Prices: Does the Federal Reserve Practice Asset Price Targeting?

Matthew T Horne

I explore the impact that asset prices have had on Federal Reserve policy in how they set the Fed Funds rate. I employ a forward-looking Taylor-like rule to model the Fed's interest rate setting policy starting in 1981. I estimate this function during the Volker and Greenspan tenures and project these estimates into Bernanke's tenure. This paper finds a significant relationship between asset prices and the Fed Funds rate, however, the asset price augmented rules do not provide any additional exploratory power over the traditional reaction functions found in the literature.

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