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Based on the Taylor rule, a 1% rise in the inflation rate compared to a 1% rise in the output gap suggests the nominal federal
Based on the Taylor rule, a 1% rise in the inflation rate compared to a 1% rise in the output gap suggests the nominal federal funds rate should rise by 3 times as much. I understand that based on the Taylor rule, nominal federal funds rate have to rise by more than the inflation change, but why 3 times as much? The Taylor rule equation is nominal federal funds rate=long run real natural rate of interest+inflation+1/2(inflation-central bank's targeted inflation)+1/2(output gap).
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