Taylor-type rules Assignment Essay

Taylor-type rules Assignment Essay

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Taylor-type rules Assignment Essay

What are Taylor-type rules?

Taylor-type rules are a class of monetary policy rules that prescribe how a central bank should set its policy rate in order to achieve its inflation and output goals. The rules are named after John Taylor, who first proposed them in a 1993 paper.

The basic idea behind Taylor-type rules is that the policy rate should be set in a way that balances the two goals of inflation and output stabilization. In particular, the rules typically specify that the policy rate should be increased if inflation is above its target, decreased if inflation is below its target, and increased further if the output gap is negative (indicating that the economy is below its potential output).

The original Taylor rule

The original Taylor rule is a simple formula that specifies the relationship between the policy rate, inflation, and the output gap. The formula is:

Code snippet

r = r* + 0.5(π – π*) + 0.5(y – y*)

Use code with caution.

where:

• r is the policy rate
• r* is the equilibrium real interest rate
• π is the current inflation rate
• π* is the target inflation rate
• y is the current output
• y* is the potential output

The coefficients on inflation and the output gap in the Taylor rule are typically set to 0.5, which means that the policy rate responds by half a percentage point to a one percentage point change in either variable.

Extensions of the original Taylor rule

The original Taylor rule has been extended in a number of ways to make it more realistic and to account for different economic conditions. For example, some extensions include terms for the rate of economic growth, the exchange rate, and the volatility of inflation.

Another extension of the Taylor rule is the so-called “flexible” Taylor rule. The flexible Taylor rule allows the coefficients on inflation and the output gap to vary over time, depending on the state of the economy. This allows the rule to be more responsive to changes in economic conditions.

The use of Taylor-type rules by central banks

A number of central banks around the world have adopted Taylor-type rules as a guide for setting their policy rates. For example, the Federal Reserve of the United States has used a Taylor-type rule since the early 2000s.

The use of Taylor-type rules by central banks has been controversial. Some economists argue that the rules are too simplistic and that they do not take into account all of the factors that central bankers need to consider when setting policy rates. Others argue that the rules are useful as a benchmark for monetary policy and that they can help to improve the transparency and accountability of central banks.

Conclusion

Taylor-type rules are a class of monetary policy rules that have been used by central banks around the world. The rules are based on the idea that the policy rate should be set in a way that balances the two goals of inflation and output stabilization. Taylor-type rules have been controversial, but they have also been shown to be useful as a benchmark for monetary policy.

In addition to the Taylor rule, there are a number of other monetary policy rules that have been proposed and used by central banks. Some of these rules are more complex than the Taylor rule, while others are simpler. The choice of which rule to use depends on a number of factors, including the economic conditions in the country and the preferences of the central bank.

Taylor-type rules Assignment Essay

RUBRIC QUALITY OF RESPONSE NO RESPONSE POOR / UNSATISFACTORY SATISFACTORY GOOD EXCELLENT Content (worth a maximum of 50% of the total points) Zero points:  Student failed to submit the final paper. 20 points out of 50:  The essay illustrates poor understanding of the relevant material by failing to address or incorrectly addressing the relevant content; failing to identify or inaccurately explaining/defining key concepts/ideas; ignoring or incorrectly explaining key points/claims and the reasoning behind them; and/or incorrectly or inappropriately using terminology; and elements of the response are lacking. 30 points out of 50:  The essay illustrates a rudimentary understanding of the relevant material by mentioning but not full explaining the relevant content; identifying some of the key concepts/ideas though failing to fully or accurately explain many of them; using terminology, though sometimes inaccurately or inappropriately; and/or incorporating some key claims/points but failing to explain the reasoning behind them or doing so inaccurately.  Elements of the required response may also be lacking. 40 points out of 50:  The essay illustrates solid understanding of the relevant material by correctly addressing most of the relevant content; identifying and explaining most of the key concepts/ideas; using correct terminology; explaining the reasoning behind most of the key points/claims; and/or where necessary or useful, substantiating some points with accurate examples.  The answer is complete. 50 points:  The essay illustrates exemplary understanding of the relevant material by thoroughly and correctly addressing the relevant content; identifying and explaining all of the key concepts/ideas; using correct terminology explaining the reasoning behind key points/claims and substantiating, as necessary/useful, points with several accurate and illuminating examples.  No aspects of the required answer are missing. Use of Sources (worth a maximum of 20% of the total points). Zero points:  Student failed to include citations and/or references. Or the student failed to submit a final paper. 5 out 20 points:  Sources are seldom cited to support statements and/or format of citations are not recognizable as APA 6th Edition format. There are major errors in the formation of the references and citations. And/or there is a major reliance on highly questionable. The Student fails to provide an adequate synthesis of research collected for the paper. 10 out 20 points:  References to scholarly sources are occasionally given; many statements seem unsubstantiated.  Frequent errors in APA 6th Edition format, leaving the reader confused about the source of the information. There are significant errors of the formation in the references and citations. And/or there is a significant use of highly questionable sources. 15 out 20 points:  Credible Scholarly sources are used effectively support claims and are, for the most part, clear and fairly represented.  APA 6th Edition is used with only a few minor errors.  There are minor errors in reference and/or citations. And/or there is some use of questionable sources. 20 points:  Credible scholarly sources are used to give compelling evidence to support claims and are clearly and fairly represented.  APA 6th Edition format is used accurately and consistently. The student uses above the maximum required references in the development of the assignment. Grammar (worth maximum of 20% of total points) Zero points:  Student failed to submit the final paper. 5 points out of 20:  The paper does not communicate ideas/points clearly due to inappropriate use of terminology and vague language; thoughts and sentences are disjointed or incomprehensible; organization lacking; and/or numerous grammatical, spelling/punctuation errors  10 points out 20:  The paper is often unclear and difficult to follow due to some inappropriate terminology and/or vague language; ideas may be fragmented, wandering and/or repetitive; poor organization; and/or some grammatical, spelling, punctuation errors 15 points out of 20:  The paper is mostly clear as a result of appropriate use of terminology and minimal vagueness; no tangents and no repetition; fairly good organization; almost perfect grammar, spelling, punctuation, and word usage. 20 points:  The paper is clear, concise, and a pleasure to read as a result of appropriate and precise use of terminology; total coherence of thoughts and presentation and logical organization; and the essay is error free. Structure of the Paper (worth 10% of total points) Zero points:  Student failed to submit the final paper. 3 points out of 10: Student needs to develop better formatting skills. The paper omits significant structural elements required for and APA 6th edition paper. Formatting of the paper has major flaws. The paper does not conform to APA 6th edition requirements whatsoever. 5 points out of 10: Appearance of final paper demonstrates the student’s limited ability to format the paper. There are significant errors in formatting and/or the total omission of major components of an APA 6th edition paper. They can include the omission of the cover page, abstract, and page numbers. Additionally the page has major formatting issues with spacing or paragraph formation. Font size might not conform to size requirements.  The student also significantly writes too large or too short of and paper 7 points out of 10: Research paper presents an above-average use of formatting skills. The paper has slight errors within the paper. This can include small errors or omissions with the cover page, abstract, page number, and headers. There could be also slight formatting issues with the document spacing or the font Additionally the paper might slightly exceed or undershoot the specific number of required written pages for the assignment. 10 points: Student provides a high-caliber, formatted paper. This includes an APA 6th edition cover page, abstract, page number, headers and is double spaced in 12’ Times Roman Font. Additionally, the paper conforms to the specific number of required written pages and neither goes over or under the specified length of the paper.
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