Journal Article
Gaps versus growth rates in the Taylor Rule
Abstract: There are many possible formulations of the Taylor rule. We consider two that use different measures of economic activity to which the Fed could react, the output gap and the growth rate of GDP, and investigate which captures past movements of the fed funds rate more closely. Looking at these rules through the lens of a partial-adjustment Taylor rule, we conclude that the gap rule does a better job of explaining the actual funds rate data, and provides a better rule-of-thumb for understanding historical monetary policy.
https://doi.org/10.26509/frbc-ec-201217
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https://doi.org/10.26509/frbc-ec-201217
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Bibliographic Information
Provider: Federal Reserve Bank of Cleveland
Part of Series: Economic Commentary
Publication Date: 2012-10-12
Volume: 2012
Issue: 17
Pages: 4