Question

In a few sentences, explain what the Taylor rule is and why it is important for...

In a few sentences, explain what the Taylor rule is and why it is important for monetary policy.

Homework Answers

Answer #1
  • Taylor rule is an Economic model which analyses inflationary pressure of an Economy forecasts interest rates in order to stabilize the Economy.
  • The Taylor rule is important for monetary policy decisions as it describes the interest rate decisions of the federal open Market committee as it is considered as a benchmark for monetary policy.
  • The Taylor rule states that central bank must change the interest rates in accordance with the inflation and various other conditions with in an Economy
  • According to this rule, when GDP is undergoing rapid growth above its potential level or when the Economy is under inflationary pressure, the federal reserve should raise interest rates and when the GDP growth is below its potential level and when there is less inflationary pressure in the Economy, the fed should lower the interest rates
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