[{"data":1,"prerenderedAt":-1},["ShallowReactive",2],{"detail-sidebar-cat-0-en-105":3,"doc-seo-323051-105":59,"doc-detail-323051-en":130},{"code":4,"msg":5,"data":6},0,"success",[7,13,18,23,28,33,38,43,48,51,55],{"id":8,"doc_module":4,"doc_module_name":9,"category_name":10,"show_sort_weight":11,"slug":12},1,"Document","Story & Novel",90,"story-novel",{"id":14,"doc_module":4,"doc_module_name":9,"category_name":15,"show_sort_weight":16,"slug":17},2,"Literature",80,"literature",{"id":19,"doc_module":4,"doc_module_name":9,"category_name":20,"show_sort_weight":21,"slug":22},4,"Exam",70,"exam",{"id":24,"doc_module":4,"doc_module_name":9,"category_name":25,"show_sort_weight":26,"slug":27},5,"Comic",60,"comic",{"id":29,"doc_module":4,"doc_module_name":9,"category_name":30,"show_sort_weight":31,"slug":32},6,"Technology",50,"technology",{"id":34,"doc_module":4,"doc_module_name":9,"category_name":35,"show_sort_weight":36,"slug":37},7,"Healthcare",40,"healthcare",{"id":39,"doc_module":4,"doc_module_name":9,"category_name":40,"show_sort_weight":41,"slug":42},8,"Research & Report",30,"research-report",{"id":44,"doc_module":4,"doc_module_name":9,"category_name":45,"show_sort_weight":46,"slug":47},9,"Religion & Spirituality",20,"religion-spirituality",{"id":46,"doc_module":4,"doc_module_name":9,"category_name":49,"show_sort_weight":46,"slug":50},"World Cup","world-cup",{"id":52,"doc_module":4,"doc_module_name":9,"category_name":53,"show_sort_weight":52,"slug":54},10,"Lifestyle","lifestyle",{"id":56,"doc_module":4,"doc_module_name":9,"category_name":57,"show_sort_weight":24,"slug":58},19,"General","general",{"code":4,"msg":60,"data":61},"ok",{"site_id":62,"language":63,"slug":64,"title":65,"keywords":66,"description":67,"schema_data":68,"social_meta":123,"head_meta":125,"extra_data":127,"updated_unix":129},105,"en","gaps-versus-growth-rates-in-the-taylor-rule","Gaps versus Growth Rates in the Taylor Rule","","Analysis compares two Taylor rule formulations for how the Federal Reserve sets the federal funds rate: one using the output gap and the other using GDP growth. Framing the rules as partial-adjustment policy, the study evaluates how well each captures historical FOMC fund-rate movements. It emphasizes real-time data availability, where revisions to activity measures can change inferred conditions, and concludes the output-gap rule matches the data substantially better and offers improved historical benchmarking.",{"@graph":69,"@context":122},[70,84,105],{"@type":71,"itemListElement":72},"BreadcrumbList",[73,77,79,82],{"item":74,"name":75,"@type":76,"position":8},"https://docshare.wps.com","Home","ListItem",{"item":78,"name":9,"@type":76,"position":14},"https://docshare.wps.com/document/",{"item":80,"name":40,"@type":76,"position":81},"https://docshare.wps.com/document/research-report/",3,{"item":83,"name":65,"@type":76,"position":19},"https://docshare.wps.com/document/gaps-versus-growth-rates-in-the-taylor-rule/323051/",{"url":83,"name":65,"@type":85,"image":86,"author":91,"headline":65,"publisher":94,"fileFormat":97,"inLanguage":63,"description":67,"dateModified":98,"datePublished":99,"encodingFormat":97,"isAccessibleForFree":100,"interactionStatistic":101},"DigitalDocument",{"url":87,"@type":88,"width":89,"height":90},"https://docshare.wps.com/thumbnails/gaps-versus-growth-rates-in-the-taylor-rule/323051.png","ImageObject",300,407,{"name":92,"@type":93},"Aurelia","Person",{"url":74,"name":95,"@type":96},"DocShare","Organization","application/pdf","2026-11-06","2026-09-21",true,{"@type":102,"interactionType":103,"userInteractionCount":34},"InteractionCounter",{"@type":104},"ViewAction",{"@type":106,"mainEntity":107},"FAQPage",[108,114,118],{"name":109,"@type":110,"acceptedAnswer":111},"What are the two Taylor rule formulations compared in the document?","Question",{"text":112,"@type":113},"The document compares a “gap” Taylor rule using the output gap and a “growth” Taylor rule using the growth rate of GDP.","Answer",{"name":115,"@type":110,"acceptedAnswer":116},"Why does the document stress using real-time data for evaluation?",{"text":117,"@type":113},"Because measures such as real GDP are revised after initial estimates; evaluating with the data available at the time of policy decisions better reflects what policymakers could observe.",{"name":119,"@type":110,"acceptedAnswer":120},"Which Taylor rule fits the historical federal funds rate data better?",{"text":121,"@type":113},"The output-gap (“gap”) rule provides a better description of the historical data than the GDP-growth (“growth”) rule, with a much lower average residual.","https://schema.org",{"og:url":83,"og:type":124,"og:title":65,"og:site_name":95,"og:description":67},"article",{"robots":126,"canonical":83},"index,follow",{"doc_id":128,"site_id":62},323051,1790251304,{"code":4,"msg":5,"data":131},{"doc_id":128,"user_id":132,"nickname":92,"user_avatar":133,"doc_module":4,"category_id":39,"category_name":40,"doc_title":65,"doc_description":67,"doc_content":134,"file_id":135,"file_url":136,"file_type":137,"file_size":138,"view_count":34,"is_deleted":4,"is_public":8,"is_downloadable":8,"audit_status":8,"page_count":24,"language":139,"language_code":63,"site_id":62,"html_lang":63,"table_of_contents":140,"faqs":141,"seo_title":142,"seo_description":67,"update_tm":143,"read_time":144,"preview_page_count":4},1099514068365,"https://ap-avatar.wpscdn.com/avatar/10000253d8d9f28188e?x-image-process=image/resize,m_fixed,w_180,h_180&k=1794309523707217728","Charles.T.Carlstrom and Timothy S.Fuerst  \nThere are many possible formulations of the Taylor rule.We consider two that use different measures of economicactivity to which the Fed could react,the output gap and the growth rate of GDP,and investigate which captures pastmovements of the fed funds rate more closely.Looking at these rules through the lens of a partial-adjustment Taylorrule,we conclude that the gap rule does a better job of explaining the actual funds rate data,and provides a betterrule-of-thumb for understanding historical monetary policy.  \nA large part of any Federal Open Market Committee(FOMC)meeting consists of a review of the current stateand outlook of the U.S.economy.This is because theessence of monetary policy is to respond to economicconditions with the tools the central bank has at its disposal.The standard FOMC policy tool is the interest rate onfederal funds (overnight loans made between banks).  \nAlthough the Fed must react to myriad economicdevelopments,its dual mandate suggests that it shouldrespond principally to the inflation rate and somemeasure of real economic activity.Nowadays,a commonway to think of the Fed's federal funds rate adjustmentsis in terms of a Taylor rule.First posited in 1993 byeconomistJohn Taylor,this \"rule\"suggests that the Fedgenerally responds to movements in inflation and the levelof the output gap(deviations of output from potential).Ofcourse,policymakers do not respond mechanically to anysuch rule,but the Taylor rule can be thought of as auseful rule-of-thumb,or an illustrative way to capturesome general principles that guide policy.  \nThere are many possible formulations of the Taylor rule.For example,there are many measures of economic activityto which the Fed could react.We consider two prominentcandidates,the output gap and the growth rate of GDP,and investigate which captures past movements of the fedfunds rate more closely.An output gap Taylor rule issimilar in spirit to an unemployment-driven rule.  \n# Gaps versus Growth Rates in the Taylor Rule\n\nHaving a rule that accurately captures the results ofFOMC policymaking decisions matters for (at least)two reasons.First,if historical policy has been judged assuccessful in terms of inflation and real activity,then thenatural inference is that such a policy should and probablywill be continued going forward.In that case,an accurateTaylor rule could help us benchmark the future behaviorof the federal funds rate.Second,the rule might also behelpful in anticipating when the Fed will employ policytools other than the federal funds rate-which it has beendoing since the rate hit zero in 2008.  \nWe find that the Taylor rule with the output gap gives abetter description of the historical data than the growth raterule.The gap rule we estimate is also consistent with theFed's policy announcement that it expects to keep the fundsrate at zero until late 2014(see,for example,the remarks byVice Chair Janet Yellen,April 11,2012).  \n## Estimating the Historical Taylor Rule\n\nThe original formulation of the Taylor rule says that thecurrent level of the federal funds rate should be equalto the long-run target for the rate,plus adjustments fordeviations in inflation and economic activity from theirlong-run targets.The long-run target for the fed funds rateis set to the sum of the long-run targets for the inflation rateand the real rate of interest.As for responding to deviationsfrom the targets,the rule suggests that the nominal funds  \nrate target should be increased whenever inflation or realactivity are above target.The idea is that such movementsin the policy rate will move inflation and real activity backto their long-run targets.Taylor suggested certain values forthe size of these policy responses to deviations.But insteadof using his numbers,we statistically estimate the rule usinghistorical data.  \nOne of our versions of the Taylor rule uses the output gap asits measure of economic activity,as Taylor did originally.Theoutput gap is ","cbCaik74SawBpKBK","https://ap.wps.com/l/cbCaik74SawBpKBK","pdf",1305308,"English","# Gaps versus Growth Rates in the Taylor Rule\n## Estimating the Historical Taylor Rule","[{\"question\":\"What are the two Taylor rule formulations compared in the document?\",\"answer\":\"The document compares a “gap” Taylor rule using the output gap and a “growth” Taylor rule using the growth rate of GDP.\"},{\"question\":\"Why does the document stress using real-time data for evaluation?\",\"answer\":\"Because measures such as real GDP are revised after initial estimates; evaluating with the data available at the time of policy decisions better reflects what policymakers could observe.\"},{\"question\":\"Which Taylor rule fits the historical federal funds rate data better?\",\"answer\":\"The output-gap (“gap”) rule provides a better description of the historical data than the GDP-growth (“growth”) rule, with a much lower average residual.\"}]","Gaps versus Growth Rates in the Taylor Rule | PDF",1789964207,13]