Need some help understanding the Taylor Rule

[hokilee]

According to the schweser notes, taylor rule formula is N_t=r_n + i_e + [0.5 (GDP_e - GDP_trend)+ 0.5(i_e-i_target)

I don’t understand why expected inflation is added after the neutral rate in the formula. Isn’t that the neutral rate is target inflation+Expected economy growth?

Please help me understand this Taylor rule… Thank you

[fino_abama]

@hokilee

According to the schweser notes, taylor rule formula is N_t=r_n + i_e + [0.5 (GDP_e - GDP_trend)+ 0.5(i_e-i_target)

I don’t understand why expected inflation is added after the neutral rate in the formula. Isn’t that the neutral rate is target inflation+Expected economy growth?

Please help me understand this Taylor rule… Thank you

r_n is stated as a real policy rate (neutral rate in real terms)

So, r_n + i_e would be the neutral rate in nominal terms.

[hokilee]

Thank you!

@fino\_abama

@hokilee

According to the schweser notes, taylor rule formula is N_t=r_n + i_e + [0.5 (GDP_e - GDP_trend)+ 0.5(i_e-i_target)

I don’t understand why expected inflation is added after the neutral rate in the formula. Isn’t that the neutral rate is target inflation+Expected economy growth?

Please help me understand this Taylor rule… Thank you

r_n is stated as a real policy rate (neutral rate in real terms)

So, r_n + i_e would be the neutral rate in nominal terms.