Statistical problem with measuring monetary policy with application to the current crisis
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This report reviews the 2007 financial crisis and the actions of the Federal Reserve. The Full Employment Act of 1946 and the "Humphrey-Hawkins" Act guides the Fed's actions. These two laws outline the long-term goals of the monetary policy framework the Fed uses; however, the framework lacks principles for achieving the mandated long term goals such as reliable, complete data. This report looks at the use of model-based forecasting and gives recommendations for principles which will strengthen the preexisting monetary framework.