Tuesday, November 3, 2015

The Taylor Rule

The Taylor rule is an equation John Taylor introduced in a 1993 paper that prescribes a value for the federal funds rate—the short-term interest rate targeted by the Federal Open Market Committee (FOMC)—based on the values of inflation and economic slack such as the output gap or unemployment gap. Since 1993, alternative versions of Taylor's original equation have been used and called "simple (monetary) policy rules" (see here and here), "modified Taylor rules,or just "Taylor rules." 

(via The Atlanta Federal Reserve)