Taylor Rules and Monetary Policy
Monetary policy is often described as a rule or strategy for changing the federal funds rate. No rule captures the FOMC’s decision-making process perfectly, but the Taylor rule roughly describes its past behavior, offering a benchmark for how it might behave in the future. This rule posits that the Fed raises the funds rate when inflation rises or real output growth exceeds the estimated growth of potential and lowers the rate when inflation falls or real output growth lags the estimated growth of potential.
Type: Economic Trends
Topics(s): Monetary Policy
Suggested citation: “Taylor Rules and Monetary Policy,” Federal Reserve Bank of Cleveland, Economic Trends, no. 06-08, pp. 06-07, 08.15.2006.