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Taylor Rule Formula

December 1, 2015

real interest rate = rn + α(π – π*) + β(y – y*)

r = Taylor Rule implied real policy interest rate

rn = Neutral rate policy interest rate

π = current inflation rate

π* = central bank’s target inflation rate

y = log of current level of output

y* = log of central bank’s target (sustainable) output

α, β = policy response coefficient > 0 ∼ 0.5

For y (GDP) it is forecast – trend, for π (inflation) it is forecast – target

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From → Economics

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