Given the following Taylor rule:
Target federal funds rate = natural rate of interest + current inflation + ½(inflation gap) +½(output gap)
Explain. Since the coefficients on the inflation and output gaps are equal, does this mean the central bank will respond to a one percent increase in inflation with the same change in the target rate as they would initiate from a one percent increase in the output gap

Question

Given the following Taylor rule: 
Target federal funds rate = natural rate of interest + current inflation + ½(inflation gap) +½(output gap)
Explain. Since the coefficients on the inflation and output gaps are equal, does this mean the central bank will respond to a one percent increase in inflation with the same change in the target rate as they would initiate from a one percent increase in the output gap

Quizplus · Accepted Answer

The Answer of  Given the following Taylor rule: 
Target federal funds rate = natural rate of interest + current inflation + ½(inflation gap) +½(output gap)
Explain. Since the coefficients on the inflation and output gaps are equal, does this mean the central bank will respond to a one percent increase in inflation with the same change in the target rate as they would initiate from a one percent increase in the output gap

Given the Following Taylor Rule