Henrike Michaelis, Volker Wieland, 03 February 2017

In a recent speech, Janet Yellen, Chair of the Board of Governors of the Federal Reserve System, compared the Fed’s strategy to simple reference rules, including the Taylor rule. This column argues that the comparisons enhance the Fed’s transparency and can help it to stand up to political pressure. However, Chair Yellen also suggests an important role for estimates of medium-run equilibrium real rates. Such estimates are extremely uncertain and sensitive to technical assumptions, and thus should not be used as key determinants of policy stance.