Economic Quarterly

This article estimates a Taylor rule according to which the Federal Reserve is forward looking, focused on core inflation, and smoothes interest rates. Using the Greenbook inflation forecasts and the real-time output gap, the estimated policy rule predicts very well the actual path of the federal funds rate over 1987 to 2000. However there are few periods when the Greenspan Fed is off the estimated rule, arising perhaps as a result of the Federal Reserve response to special macroeconomic developments not captured by the simple rule.