Taylor rule

I know the obvious answer is anything is fair game. But is the Taylor rule something to be expected with reasonable chance on exam day? It involves the neutral real policy rate, inflation rate and gap, and output gap.

I’ve seen that appear in several third party mock exams and perhaps even in one of the CFAI mocks…although the actual formula was given.

Not to sound like a d**k, but it’s really not that difficult of a formula to remember/work with so I would say it’s definitely fair game.

Yes, makes sense… thanks

The Taylor rule also appears at Level III.

Based on that (i.e., it’s not the last time they could test you on it), it may be slightly less likely than other formulae in the Level II curriculum.

Still . . . I’d make sure that I know it.

Is the coefficient always assumed to be 0.5 for the inflation and current output gap, unless otherwise stated?


That’s what Mr./Ms. Taylor suggested.

(Note: the curriculum doesn’t specify whether it was Zachary, Elizabeth, or James.)

memorize the .5 part as well. The CFAI practice vignette with it gives the formula but no indication of what to use for the (alpha) or (beta).

John Taylor according to investopedia. Definitely focusing on the important stuff these last days lol.

I believe “Taylor” is a a typo, and the inventers name was Steven

Is that ^ testable

It’s safe to say that it’s all fair game…


No . . . _ de _testable.

when given a different coefficient, I assume you use those and ignore the 0.5 for each?

Any given information on the exam overrides what you read in the curriculum as “usually” the case/true. IMO at least.

I was actually shocked when I saw they included the formula on that one vignette that was mentioned in the CFAI online practice tests… until I realized they were effectively testing that you knew alpha and beta were 0.5. Well that and you could plug the rest in correctly (I think one value had to be ignored).

Still - how often do you see them give you a formula? That was weird.