What is ‘taylor rule’ in Economics?

  • This refers to a rule used by central banks to determine the right interest rate for the economy based on changes in price inflation and other economic conditions.
  • It was proposed by American economist John Taylor as a tool to conduct rules-based monetary policy.
  • The Taylor rule is often proposed as a solution to the problem of discretion involved in the framing of monetary policy due to the influence of political populism.
  • It provides a formula to determine how much a central bank should target an increase or decrease in interest rates depending on the economy’s health.


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