Help to remember Taylor Rule

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malawyer100

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well, having to remember dozens of formulas each exam and rarely using them because of all the other stuff, I try to think of helpful Eselsbruecken (memory hooks).
One I figured out for the Taylor Rule
target rate = neutral rate + 0,5*(GDP exp - GDP target) + (0,5*i-exp - i-trend)
is
E.T.-rule.
First, T is also in Taylor so it should pop up in the head when you see this, second, E comes before T, i.e., the E xpected stuff comes before the substraction of T arget / T rend.
Guess this is now 4-6 minutes / points safe, 354-56 to go ;-)
You guys have other good hooks?
 
Careful on the formula, it’s:
Neutral + [0.5*(GDPforecast - GDPTrend) + 0.5*(Iforecast-Itarget)]
CFAI uses forecast, Schweser uses expected…not important…but you’ve got the 0.5 in the wrong place in the Inflation term.
NAIL IT
 
taylor rule rocks, I hope thats on the test, doubt it though.
 
if ur expected gdp is greater than trend then from a central bank perspective u need to raise interest rates as concerns of economy overheating
if expected is greater than trend then u also need to incread interest rates to negate increaisng inflation pressures
the hard part for me is to rembmber the 0.5
 
I remember that it’s the neutral rate, plus half of the inflation gap plus half of the output gap
Now you remember output gap too.
 
alsak, thanks for correcting it and excuse my mistake. with all this discussing about the formula it will now become hard not to remember it, I guess
 
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