# Taylor Rule Formula

**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*

Advertisements

## Trackbacks & Pingbacks