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Taylor rule: it= r* t a1(t-*) a2(yt-yt*), where it is the short-term nominal interest rate; r* is a normal or long-term average real interest rate;
Taylor rule: it= r* t a1(t-*) a2(yt-yt*), where it is the short-term nominal interest rate; r* is a "normal" or long-term average real interest rate; t- is the inflation rate; * is the target inflation rate; yt is the logarithm of real output; and yt* is the logarithm of a "normal" ("potential") level of output. The parameters a1 and a2 indicate the sensitivity of the interest rate to inflation and output. Use a1 = a2 = 1/2. In 2010, the inflation rate was 1.33%, and one-year yield was 0.32%. What was the real interest rate
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