Taylor rule

The Taylor rule is a monetary policy guideline proposed by economist John Taylor in 1993, prescribing how central banks should set nominal interest rates in response to deviations of inflation and output from their target levels. The rule takes the form: the federal funds rate equals the equilibrium real rate plus inflation, plus a coefficient times the inflation gap, plus a coefficient times the output gap. It was intended as a descriptive summary of what the Federal Reserve had actually done during the Great