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OverviewThe flagship learning arc.ConceptsCore measures, terms, and mechanisms.PolicyFiscal, monetary, and transmission routes.
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ModelsEmpirical, structural, and theoretical routes.GlossaryFast definitions while you learn.
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Theory-Based Models

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Macro by Mark

U.S. macro data with release timing, boards, and macro context.

Public U.S. data from agencies and market feeds.

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Theory-Based Models

Taylor Rule

A policy rule linking the nominal interest rate to inflation and output gaps, giving a compact view of monetary reaction functions.

Introductoryrule line
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Theory-Based Models

Overview

Route section

A monetary-policy route for seeing how the policy rate moves when inflation overshoots or the economy runs above potential.

Core question

How aggressively should the policy rate react to inflation and output gaps?

ExploreProofCompare

Variables

iii

Policy rate

Nominal interest rate set by the central bank.

πππ

Inflation

Observed inflation.

π∗π^*π∗

Inflation target

Central bank inflation objective.

ygapy_gapyg​ap

Output gap

Distance from potential output.

Assumptions

The Taylor rule is a benchmark reaction function, not a full optimal policy solution.

It summarizes behavior rather than deriving it from a welfare problem.

Parameters

rnr^nrn

Neutral rate

Rule

Real neutral policy benchmark.

πππ

Inflation

Rule

Observed inflation for the active point.

π∗π^*π∗

Inflation target

Rule

Target inflation objective.

φπφ_πφπ​

Inflation response

Rule

How strongly the rule responds to inflation misses.

φyφ_yφy​

Output-gap response

Rule

How strongly the rule responds to output gaps.

ygapy_gapyg​ap

Output gap

State

Current gap from potential output.

Shock presets

Hawkish shift

Raises the inflation response coefficient.

Overheating economy

Pushes the active point to a positive output gap.

Introductory

Taylor Rule

How aggressively should the policy rate react to inflation and output gaps?

policyinflationgoods market
OverviewExploreProofCompare