Taylors Rule

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Taylors Rule

A general rule for central banks when deciding interest rates. The rule states that interest rates should be increased in times of high inflation and when employment is higher than full employment, and should be decreased in periods of low inflations and higher unemployment. The rule states that following these principles will encourage growth while discouraging inflation. The Federal Reserve follows this rule implicitly, even though it does not explicitly endorse it.
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Rudebusch (1998) Taylor's Rule and the Fed: 1970-1997.
Paul Krugman, Taylor's Rule on Fiscal Policy, The Conscience OF A Liberal (June 16, 2013, 8:13 AM), http://krugman.
The econometric assessment of monetary rules such as Taylor's rule (1993) has become an important field of study in the modern monetary policy literature, as that paper stimulated a series of theoretical and empirical studies with varying objectives.
Set against Charles Taylor's rule of Liberia, Alexander Maksik's novel transmutes the bloody madness of civil war into the advancing disorientation of Jacqueline, a refugee attempting to find direction in the seaside resort on a Greek isle.
For brevity's sake, we only computed optimal interest rates when a lag of four months is included in the specification of the Taylor's rule equation.
53) states that his rule "features responses to the same macroeconomic conditions as in Taylor's rule, but with a base instrument.
Current monetary policy literature talks about the response of the federal funds rate to stabilize goal variables (inflation rate and GDP) often in the framework of Taylor's rule.
This success seems remarkable because Taylor's rule is so simple: It is set according to only four components.
Under Taylor's rule, arms traffickers have prospered in Liberia, among them Gus Kouwenhoven, a Dutch national who runs the Hotel Africa outside Monrovia, and the notorious Victor Bout, a Russian broker based in the United Arab Emirates (see sidebar).
In my analysis, I modify Taylor's rule so that it can be analyzed through 1997 using data on the unemployment rate and the Consumer Price Index (CPI).
By far the most pronounced such departure occurred during the early phases of the current expansion, in 1992 and 1993, when the Fed responded to the so-called "financial headwinds" buffeting the economy by holding short rates well below the levels that would have been prescribed by Taylor's rule.
Glenn Rudebusch (1998) Taylor's Rule and Fed: 1970-1997.