Evaluating the Current Stance of Monetary Policy Using a Taylor Rule

Description:

Oversight of the Federal Reserve's (Fed's) monetary policy decisions rests with Congress. But oversight is encumbered by the absence of a straightforward relationship between interest rates and economic performance. Further, the Fed's policy decisions are discretionary, meaning there is no objective, transparent “yardstick” for evaluating their decisions. A simple rule of thumb guide to monetary policy decisions called a “Taylor rule” is an intuitive way to judge actual policy against some objective, albeit simplistic, ideal. Taylor rules
prescribe a federal funds target based on inflation and the output gap (i.e., the difference between actual gross domestic product [GDP] and potential GDP) and can be adjusted to reflect a variety of policy goals.

Creator(s): Labonte, Marc
Location(s): United States
Creation Date: January 30, 2012
Partner(s):
UNT Libraries Government Documents Department
Collection(s):
Congressional Research Service Reports
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Creator (Author):
Labonte, Marc

Specialist in Macroeconomic Policy

Publisher Info:
Place of Publication: Washington D.C.
Date(s):
  • Creation: January 30, 2012
Coverage:
Place
United States
Description:

Oversight of the Federal Reserve's (Fed's) monetary policy decisions rests with Congress. But oversight is encumbered by the absence of a straightforward relationship between interest rates and economic performance. Further, the Fed's policy decisions are discretionary, meaning there is no objective, transparent “yardstick” for evaluating their decisions. A simple rule of thumb guide to monetary policy decisions called a “Taylor rule” is an intuitive way to judge actual policy against some objective, albeit simplistic, ideal. Taylor rules
prescribe a federal funds target based on inflation and the output gap (i.e., the difference between actual gross domestic product [GDP] and potential GDP) and can be adjusted to reflect a variety of policy goals.

Physical Description:

10 pages.

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Subject(s):
Partner:
UNT Libraries Government Documents Department
Collection:
Congressional Research Service Reports
Identifier:
Resource Type: Report
Format: Text