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 … continued below

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10 pages.

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Labonte, Marc January 30, 2012.

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This report is part of the collection entitled: Congressional Research Service Reports and was provided by the UNT Libraries Government Documents Department to the UNT Digital Library, a digital repository hosted by the UNT Libraries. It has been viewed 359 times. More information about this report can be viewed below.

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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.

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10 pages.

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Congressional Research Service Reports

The Congressional Research Service (CRS) is the public policy research arm of Congress. This legislative branch agency works exclusively for Members of Congress, their committees and their staff. This collection includes CRS reports from the mid-1960's through 2018—covering a variety of topics from agriculture to foreign policy to welfare.

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  • January 30, 2012

Added to The UNT Digital Library

  • July 3, 2012, 7:51 a.m.

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  • Aug. 10, 2015, 11:52 p.m.

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Labonte, Marc. Evaluating the Current Stance of Monetary Policy Using a Taylor Rule, report, January 30, 2012; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc87374/: accessed October 11, 2026), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.

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