Cleveland Fed economists cautious over use of Taylor rule
Research urges policy-makers to ‘take care’ when using the rule
The difficulty in measuring potential output and the natural rate of unemployment should be taken into account when using the Taylor rule for policy recommendations, according to economists at the Federal Reserve Bank of Cleveland.
In one of the Cleveland Fed's publications, Economic Trends, Charles Carlstrom and Timothy Stehulak show that a Taylor rule calls for a significantly higher federal funds rate than its current level – either 0.69% if considering output, or 1.85% if using unemployment
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