Advanced Macro & Growth · intro
What moves on the Taylor Rule diagram
Responding more than one-for-one raises realrealAdjusted for inflation, measured in actual purchasing power. rates when inflationinflationA sustained rise in the overall price level, eroding money's purchasing power. rises, the stabilizing Taylor principle.
Read the rule: current inflationinflationA sustained rise in the overall price level, eroding money's purchasing power. in, policy rate out.
InflationinflationA sustained rise in the overall price level, eroding money's purchasing power. jumps, trace up the 1.5-sloped line.
The rate rises MORE than inflationinflationA sustained rise in the overall price level, eroding money's purchasing power. did, so the REALrealAdjusted for inflation, measured in actual purchasing power. rate rises and bites. Slope > 1 is the whole discipline: the Taylor principle.
Examiners ask this as: inflation spike policy response, rule prescribes hike.
Other scenarios on Taylor Rule