Following the general practice of modern macroeconomics, monetary policy is characterized in the FRB/US model in terms of a “Taylor rule.” The main feature of such a rule is that policymakers adjust the level of a short-term interest rate—the federal funds rate in the case of the Federal Reserve to stabilize inflation at a given objective and hold output near the level consistent with full employment. Policymakers are assumed to follow such a rule systematically over time, even when
faced with the occasional temptation to depart from it. Thus, the public perceives the policy as perfectly credible. That is, the public knows the policy rule and expects policymakers to abide by it systematically