Mankiw and Taylor rule vs Fed Rate

### Code to graph Taylor/Mankiw rule approximations to Fed Rate - /u/MetricT

library(tidyverse)
library(fredr)
library(purrr)
library(scales)

# Set FRED API key to access the FRED database.
# You may request an API key at:
# https://research.stlouisfed.org/useraccount/apikeys
fredr_set_key(api_key_fred)

### What are the start/end dates you wish to graph
date_start <- as.Date("1949-01-01") # <- Earliest date
date_start <- as.Date("2000-01-01")
date_end   <- as.Date(Sys.Date())

### Data to load from FRED
fred_series  <-
  tribble(
    ~ series_id,            ~frequency,  ~units,
    "GDP",                  "q",         "lin", # Nominal GDP
    "GDPC1",                "q",         "lin", # Real GDP
    "GDPPOT",               "q",         "lin", # Potential GDP
    "GDPDEF",               "q",         "pc1", # Gross Domestic Product: Implicit Price Deflator
    "CPILFESL",             "m",         "pc1", # Consumer Price Index for All Urban Consumers: All Items Less Food and Energy in U.S. City Average
    "UNRATE",               "m",         "lin", # Unemployment Rate
    "FEDFUNDS",             "m",         "lin", # Federal Funds Rate
    )

# Use purrr to pull all of the series from FRED
data_fred <-
  purrr::pmap_dfr(.l = fred_series, .f = fredr) %>%
  select(date, series_id, value) %>%
  pivot_wider(id_cols = "date", names_from = "series_id", values_from = "value") %>%
  arrange(date)

# Filter data to the time window specified
data_fred <- data_fred %>% filter(date >= date_start & date <= date_end)

# Compute the Taylor/Mankiw Rule estimates
data_fred <-
  data_fred %>%
  mutate(Taylor_Rule = GDPDEF + 2 + 0.5 * (GDPDEF - 2) + 0.5 * ((GDPC1 - GDPPOT) / GDPPOT) * 100) %>%

  # Compute Mankiw rule using constants from Mankiw's original paper at
  # http://scholar.harvard.edu/files/mankiw/files/us_monetary_policy_during_the_1990s.pdf
  # mutate(Mankiw_Rule = 8.5 + 1.4 * (CPILFESL - UNRATE))

  # Compute Mankiw rule using updated constants by Lars Christensen
  # at https://marketmonetarist.com/2014/09/16/mankiw-rule-tells-the-fed-to-tighten/
  mutate(Mankiw_Rule = 9.1 + 2.1 * (CPILFESL - UNRATE))

##########################################################################
### Graph: Taylor Rule, Mankiw Rule, and Fed Rate
##########################################################################
c1 <- "U.S. Bureau of Economic Analysis, Real Gross Domestic Product [GDPC1]\n"
c2 <- "U.S. Congressional Budget Office, Real Potential Gross Domestic Product [GDPPOT]\n"
c3 <- "U.S. Bureau of Economic Analysis, Gross Domestic Product: Implicit Price Deflator [GDPDEF]\n"
c4 <- "U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: All Items Less Food and Energy in U.S. City Average [CPILFESL]\n"
c5 <- "U.S. Bureau of Labor Statistics, Unemployment Rate [UNRATE]\n"
c6 <- "Board of Governors of the Federal Reserve System (US), Effective Federal Funds Rate [FEDFUNDS]\n"
c7 <- "retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org\n"
c8 <- paste("Data retrieved on", format(Sys.time(), "%B %d, %Y at %I:%M %p %Z"))

caption  <- "" #paste(c1, c2, c3, c4, c5, c6, c7, c8)

# Initialize the plot
p_mankiw_taylor <-
  ggplot() +
  theme_bw() +
  theme(legend.title = element_blank()) +
  theme(legend.position = "bottom") +
  # Plot the Fed Rate
  geom_line(data = data_fred, size = 1.3, aes(x = date, y = FEDFUNDS/ 100, color = "Federal Funds Rate")) +

  # Plot the Taylor rule
  geom_line(data = data_fred %>% filter(!is.na(Taylor_Rule)), size = 1.3, aes(x = date, y = Taylor_Rule / 100, color = "Taylor Rule")) +

  # Plot the Mankiw rule
  geom_line(data = data_fred %>% filter(!is.na(Mankiw_Rule)), size = 1.3, aes(x = date, y = Mankiw_Rule / 100, color = "Mankiw Rule")) +

  geom_hline(yintercept = 0, linetype = "dotted") +

  scale_y_continuous(breaks = pretty_breaks(7), labels = scales::percent_format(accuracy = 1)) +
  scale_x_date(breaks = pretty_breaks(8)) +
  scale_colour_manual(values =  c("Federal Funds Rate" = "steelblue2",
                                  "Taylor Rule"        = "goldenrod",
                                  "Mankiw Rule"        = "red3"
                                  )) +

  # Set the title, subtitle, captions, xlab, and ylab
  labs(title = "Taylor Rule, Mankiw Rule, and Fed Rate",
       subtitle = "Recessions marked with vertical bars",
       caption = caption, x = "", y = "")

print(p_mankiw_taylor)