Monetary Policy Rules and the Policy Stance Public
From Taylor's 1993 rule to the natural rate of interest and the question every central-bank watcher asks: is policy tight or loose? Eight lessons with the original sources, the equations, and flashcards.
Lessons in order
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13 min Public
Why rules? Time inconsistency and the case for commitment
Why a central bank that is free to do the best thing each period can end up with higher inflation and nothing to show for it.
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23 min Public
The Taylor rule
Taylor's 1993 formula, what each term means, and why a simple rule described Fed policy so well.
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33 min Public
The Taylor principle and determinacy
Why the coefficient on inflation has to exceed one, shown in the three-equation New Keynesian model.
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43 min Public
Variants of the Taylor rule
Balanced-approach, inertial, forward-looking and first-difference rules, and the five rules the Fed publishes twice a year.
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53 min Public
The natural rate of interest
Wicksell's idea, the Laubach–Williams estimate, and why a number nobody can observe decides whether policy is tight.
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64 min Public
Measuring the policy stance
Real rate gaps, shadow rates at the lower bound, and financial conditions: three ways to answer "is policy tight?"
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73 min Public
Real-time data and the Taylor rule
Orphanides' finding that the data available at the time change the verdict on the 1970s, and what it means for judging policy today.
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84 min Public
Rules in practice: Fed, ECB and SNB
How three central banks describe their own frameworks, how they use rules without following them, and how to compute a prescription yourself.