Date Presented

Spring 5-2020

Document Type

Thesis

Degree Name

Bachelor of Science

Department

Economics

First Advisor

Jessica Scheld, PhD

Second Advisor

Mark Ledbetter, PhD

Third Advisor

Ed DeClair, PhD

Abstract

This thesis examines various economic indicators to select those that are the most significant in a predictive model of the Effective Federal Funds Rate. Three different statistical models were built to show how monetary policy changed over time. These three models frame the last economic downturns in the United States; the tech bubble, the housing bubble, and the Great Recession. Many iterations of statistical regressions were conducted in order to achieve the final three models that highlight variables with the highest levels of significance. It is important to note the economic data has high levels of autocorrelation, and that these issues detract from the creation of a perfect statistical model. However, the results from the regressions showed that the Federal Reserve has altered the basis for policy over the last three recessionary periods. They tend to alter the weights of certain economic variables over others as time has progressed. More recent literature has suggested that the Fed has placed more emphasis on the Financial Markets than in years past. Historically speaking, the markets were only a fraction of the information that the Federal Reserve considered in adjusting the interest rates. However, they have more closely monitored investor sentiment in their decision making process.

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