Theory-Based Models
Theory-Based Models
Theory-Based Models
A policy rule linking the nominal interest rate to inflation and output gaps, giving a compact view of monetary reaction functions.
Theory-Based Models
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Scenario
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Raises the inflation response coefficient.
Pushes the active point to a positive output gap.
Current rule rate
Policy rate
4.50
Inflation gap
0.20
Inflation response
1.50
Output-gap response
0.50
Impact summary
The active Taylor rule implies a policy rate of 4.50 for the current inflation and output-gap mix.
With little or negative gap pressure, the rule leans less on activity and more on the inflation term.