IMF Economic Review

, Volume 63, Issue 1, pp 22–70 | Cite as

The Federal Reserve’s Framework for Monetary Policy: Recent Changes and New Questions

  • William B English
  • J David López-Salido
  • Robert J Tetlow


The Federal Reserve has made substantial changes to its framework for monetary policy in recent years. On balance, the Federal Reserve has moved closer to the “flexible inflation targeting” used, in some form or another, by many foreign central banks. The Federal Reserve’s approach, however, includes a balanced approach to its dual objectives and uses a flexible horizon over which policy aims to foster its objectives. The paper uses a small-scale macro model to help illuminate the Federal Reserve’s use of forward guidance. It also examines the case for establishing a different policy objective, such as a higher inflation target or a nominal income target. The paper finds that such changes might be beneficial, but also have potentially significant drawbacks.

JEL Classifications

52 58 


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Copyright information

© International Monetary Fund 2015

Authors and Affiliations

  • William B English
  • J David López-Salido
  • Robert J Tetlow

There are no affiliations available

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