Taylor Rule
Calculate Fed interest rate using Taylor Rule. Formula: Target Rate = 2% + Inflation + 0.5×(Inflation Gap) + 0.5×(Output Gap).
Formula
Target Rate = 2 + Inflation + 0.5×(Inflation - Target) + 0.5×(Output Gap)
Inflation 2.5%, target 2%, gap 0.5%
Inputs
- Inflation Rate (%): 2.5
- Inflation Target (%): 2
- Output Gap (%): 0.5
Target ~3.75%
Frequently asked questions
What is Taylor Rule?
Economic model by John Taylor for setting optimal Fed funds rate based on inflation & output.