What is Taylor rule?
The '''Taylor rule''' is a [[monetary policy]] for how [[Central bank|central banks]] manage [[money]]. It was made by economist [[John B. Taylor]] in 1992.<ref>{{Cite web|title=Interview with John B. Taylor {{!}} Federal Reserve Bank of Minneapolis|url=https://www.minneapolisfed.org/article/2006/interview-with-john-b-taylor|access-date=2024-01-05|website=www.minneapolisfed.org|language=en}}</ref> The idea is to control the [[economy]] by adjusting short-term interest rates.<ref>{{Citation|last=Trehan|first=John P. Judd, Bharat|title=Has the Fed Gotten Tougher on Inflation?|date=2001|url=https://www.taylorfrancis.com/chapters/edit/10.4324/9780429270949-48/fed-gotten-tougher-inflation-john-judd-bharat-trehan|work=Handbook of Monetary Policy|publisher=Routledge|doi=10.4324/9780429270949-48|isbn=978-0-429-27094-9|access-date=2024-01-05}}</ref> The rule looks at the federal funds rate, price level, and changes in real income.<ref>John B. Taylor, Discretion versus policy rules in practice (1993), Stanford University, y, Stanford, CA 94905</ref> It figures out the best federal funds rate based on the gap between the desired [[inflation rate]] and the actual inflation rate, plus the gap between actual and natural output level. When inflation is higher than the target, the Taylor rule suggests a higher interest rate.<ref>{{Cite journal|last=Mishkin|first=Frederic|date=2011|journal= National Bureau of Economic Research|title=Monetary Policy Strategy: Lessons from the Crisis|url=https://www.nber.org/papers/w16755|location=Cambridge, MA|doi=10.3386/w16755}}</ref> In the [[United States]], the [[Federal Open Market Committee]] manages money policy, aiming for a 2% average inflation rate. The Taylor rule is different from discretionary policy, which depends on personal views of monetary policy authorities and has fewer factors considered.<ref>{{Cite journal|last=Svensson|first=Lars E.|date=2002|title=What is Wrong with Taylor Rules? Using Judgment in Monetary Policy through Targeting Rules|journal= National Bureau of Econom