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KEY EQUATIONS

i = π + 0.02 + 0.5y + 0.5(π - 0.02) (14.1)

The Taylor rule describes how the Fed targets the nominal federal funds rate, i, depending on the inflation rate, π, the long-run average real federal funds rate (0.02), the deviation of output from full-employment output, y, and the deviation of inflation from its target (0.02).

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Source: Abel A.B., Bernanke B., Croushore D.. Macroeconomics. 10th Edition, Global Edition. — Pearson,2021. — 690 pp.. 2021
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