Potential output, the Taylor Rule and the Fed

Omar Licandro () and Francesca Vinci

No 2021/03, Discussion Papers from University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM)

Abstract: The Taylor Rule is widely considered a useful tool to summarise the Fed's policy, but the information set employed in practice to assess the state of economic activity is still an object of debate. The contribution of this paper is to provide evidence in favour of the following hypotheses. First, the original Taylor Rule is a valid representation of the actual working of the Fed's monetary policy. Second, the real time beliefs of the Fed concerning potential output can be proxied by the estimates published by the Congressional Budget Office. Third, potential output estimates were revised down following the Great Recession.

Keywords: monetary policy; Taylor Rule; Great Recession; Economic recovery (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-ore
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:not:notcfc:2021/03

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