Finance and Economics Discussion Series (FEDS)
June 2026
Double Inertia, Taylor Rules, and Monetary Policy Gradualism
Edmund Crawley, William Goodwin, Margaret M. Jacobson, and Fabian Winkler
Abstract:
In recent decades, an empirically estimated double-inertial rule fits the path of changes in the federal funds rate better than a standard inertial Taylor rule. Inertial Taylor rules aim to capture monetary policy gradualism via slow adjustments in the level of the policy rate. Double-inertial rules build on this specification by also gradually adjusting the pace of change in the policy rate. Because a double-inertial rule explains more than twice the variation of changes in the policy rate than its standard inertial counterpart, we argue that practitioners should consider a double-inertial rule when characterizing U.S. monetary policy.
Keywords: Monetary policy, Taylor rules, gradualism, interest rate smoothing, inertia, federal funds rate, effective lower bound
DOI: https://doi.org/10.17016/FEDS.2026.036
PDF: Full Paper
Disclaimer: The economic research that is linked from this page represents the views of the authors and does not indicate concurrence either by other members of the Board's staff or by the Board of Governors. The economic research and their conclusions are often preliminary and are circulated to stimulate discussion and critical comment. The Board values having a staff that conducts research on a wide range of economic topics and that explores a diverse array of perspectives on those topics. The resulting conversations in academia, the economic policy community, and the broader public are important to sharpening our collective thinking.