TITLE:
Is the Federal Reserve Learning? A New Simple Correlation of Inflation and Economic Stability Trends
AUTHORS:
Romney B. Duffey
KEYWORDS:
Financial Policy, Inflation, Unemployment, Learning Theory, Correlations, Predictions
JOURNAL NAME:
Open Journal of Business and Management,
Vol.4 No.4,
August
17,
2016
ABSTRACT: The relatively recent (last few years) actions by the Federal Reserve and other economic
factors have mitigated potential changes in unemployment rate. We examine the trends
in economic inflation for the USA using the data and empirical models given in the
recent paper by Yellen [1]. A new correlation for the inflation rate trend is developed
based on Learning Theory. We may conclude that the Federal Reserve has learnt to
control inflation rate via an implicit learning process, and has tempered the fluctuations
in unemployment rate, which previously showed evidence of instability. The fluctuations
and trends in unemployment do not show evidence of learning, and are fitted by
a simple periodic dynamic expression with an underlying unemployment rate of 6.5%.
Yellen [1] also discusses the role of “expectation” in forecasting and economic changes
in policies and directions. This behavioral response to rule changes is clearly linked to
the learning processes in society and by people, which are a fruitful topic for future research
on economic predictions and for interpretive purposes.