Monetary Policy and Unemployment—A Study on the Relationship Exists in the United States

This paper intends to make research on the relationship between monetary policy and unemployment of the United States from the first quarter of 1983 to the second quarter of 2018. Data is collected and later divided into two groups, namely an ex-crisis group and a post-crisis group, based on the event of the 2008 world financial crisis. This paper uses an extended version of the original Taylor’s rule by adding the concept of unemployment degree. The results suggest that in both periods, the unemployment gap degree does make a positive impact on the Fed interest rate and has a constantly significant impact on the Fed rate. As a result, Central Banks should adopt an easy monetary policy to stimulate the domestic economy from recession.