1、 https:/crsreports.congress.gov July 9, 2014Monetary Policy and the Taylor RuleOverview Some Members of Congress, dissatisfied with the Federal Reserves (Feds) conduct of monetary policy, have looked for alternatives to the current regime. H.R. 5018 would trigger congressional and GAO oversight when
2、 interest rates deviated from a Taylor rule. This In Focus provides a brief description of the Taylor rule and its potential uses. What Is a Taylor Rule? Normally, the Fed carries out monetary policy primarily by setting a target for the federal funds rate, the overnight inter-bank lending rate. The
3、 Taylor rule was developed by economist John Taylor to describe and evaluate the Feds interest rate decisions. It is a simple mathematical formula that, in the best known version, relates interest rate changes to changes in the inflation rate and the output gap. These two factors directly relate to
4、the Feds statutory mandate to achieve “maximum employment and stable prices.” The best known version of this rule is: FFR = (R + I) + 0.5 x (output gap) + 0.5 x (I - IT) where: FFR = federal funds rate R = equilibrium real interest rate (assumed here to equal 2) output gap = percent difference betwe
