US MONETARY-POLICY AND ECONOMETRIC MODELING - TALES FROM THE FOMC TRANSCRIPTS 1984-1991

This paper uses the transcripts from the FOMC meetings to characterize the interactions between policymakers and macro models in the formula tion of US monetary policy. We develop a taxonomy of these interaction s and present two case studies. The first case focuses on the debate o n the choice of monetary target and the second case focuses on the 199 0/1991 recession. The analysis reveals that US monetary policy relies on models for information. Models give estimates of both the outlook a nd the response of the economy to policy changes. Models also evolve t o recognize the changing context in which policymakers operate-exchang e rate flexibility, financial deregulation, and international trade ag reements. (C) 1998 Elsevier Science B.V. All rights reserved.