It is believed that in order to control high inflation rates, the Federal Reserve Bank (“the Fed”) increases the federal funds rate and when the inflation rate gets low, the Fed takes the opposite approach. (The federal funds rate is a rate of interest that banks charge each other to lend funds and stay above the reserve requirement, set by the government.) This project examines the relationship between the federal funds rate and the inflation rate. Sixty-five years of historical inflation rates and federal funds rates were used as the basis for this exploration. Because a time lag between the setting of the federal funds rate and its impact on the economy may exist, recurrence quantification analysis was used in the time series analysis. The results provide insight into the relationship between the federal funds rate and inflation and test the impact of using the federal funds rate as an anti-inflationary tool.
Wilkins, Aaron, "Historical study of the relationship between the federal funds rate and the inflation rate" (2019). Undergraduate External Publications. Paper 20.
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