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The Taylor Rule: A Guidepost for Monetary Policy?

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Once a topic to be found only in scholarly economic journals, the Taylor rule is popping up regularly in news magazines, finance journals, and central bankers’ speeches. Does the Fed follow the rule? Should it? This Commentary explains what the Taylor rule is, discusses why it seems to describe Fed interest-rate setting, and argues that the rule is most valuable as a guideline rather than a prescription.

Once a topic to be found only in scholarly economic journals, the Taylor rule is popping up regularly in news magazines, finance journals, and central bankers’ speeches. Does the Fed follow the rule? Should it? This Commentary explains what the Taylor rule is, discusses why it seems to describe Fed interest-rate setting, and argues that the rule is most valuable as a guideline rather than a prescription.


Suggested citation: Carlstrom, Charles T., and Timothy S. Fuerst, 2003. "The Taylor Rule: A Guidepost for Monetary Policy?" Federal Reserve Bank of Cleveland, Economic Commentary, 07.01.2003.

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