Taylor rule puzzle

CFA Level II
#1

I know that Taylor rule should go with the formula

i = rn + α(π − π*) + β(y − y*)

any idea why does TT uses the following formula in one of the questions?

i = rn + π + α(π − π*) + β(y − y*)

#2

The Taylor rule is

i = rn + π + α(π − π*) + β(y − y*)

I think your first formula is outdated – I’ve seen it from older CFAI material.

#3

I agree that is the Taylor rule. The way to think about this is that the central bank is trying to set the optimal short-term interest rate. It is based on the neutral (nominal) rate, which you show as the sum of the real neutral rate plus inflation.

Often, the coefficients of alpha and beta are set as 0.5.

#4

Thanks a million, heroes