In 1980, the U.S. inflation rate was 13.5 percent and the unemployment rate reached 7.8 percent. Suppose
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In 1980, the U.S. inflation rate was 13.5 percent and the unemployment rate reached 7.8 percent. Suppose that the target rate of inflation was 3 percent back then and the full employment rate of unemployment was 6 percent at that time. What value does the Taylor Rule predict for the Fed’s target interest rate?
Would you be surprised to learn that the Fed’s targeted interest rate (the federal funds rate) reached 18.9 percent in December 1980?
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To calculate the target interest rate using the Taylor Rule we can use the following formula Target ...View the full answer
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Related Book For
Macroeconomics
ISBN: 9781264112456
22nd Edition
Authors: Campbell McConnell, Stanley Brue, Sean Flynn
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