The taylor rule calculator takes current gdp, current inflation, long run gdp, nominal interest rate, target inflation, log10, output gap and federal funds target rate and returns inflation rate gap and real interest rate. It is built for quick answers, for checking somebody else’s arithmetic, and for the moments when a formula book is not within reach.
What Is the Taylor Rule Calculator?
The taylor rule calculator takes current gdp, current inflation, long run gdp, nominal interest rate, target inflation, log10, output gap and federal funds target rate and turns them into inflation rate gap and real interest rate.
It is the kind of calculation you would otherwise do on the back of an envelope: mechanical, repeatable and easy to get subtly wrong without noticing.
How the Taylor Rule Figure Is Built
Each result is calculated from the ones before it, so the working is fully visible. That matters when the answer is going to be quoted to somebody else and you need to be able to explain where it came from.
The figures are exactly as good as the assumptions underneath them. Check the rates, the periods and the tax treatment before you rely on the result.
Reading the Result Sensibly
A small change in an input can move the result by much more than you would expect, particularly where the calculation divides by one of the figures you supplied. That is worth understanding before you rely on a figure.
For anything that will be committed to, write the inputs down beside the result. A number you can reproduce is worth far more than one you cannot explain.
A Worked Example
Working through an example, with current gdp set to 10, current inflation set to 5, long run gdp set to 2, the calculator returns inflation rate gap of -5, and real interest rate of 95. Substitute your own figures and the same steps produce the same kind of answer.
Frequently Asked Questions
What do I need to work out inflation rate gap?
Enter current gdp, current inflation, long run gdp, nominal interest rate, target inflation, log10, output gap and federal funds target rate. The calculator then works through the relationship and reports inflation rate gap and real interest rate.
What does the taylor rule actually calculate?
It takes current gdp, current inflation, long run gdp, nominal interest rate, target inflation, log10, output gap and federal funds target rate and converts them into inflation rate gap and real interest rate using the standard relationship for this problem. Each step is applied in turn, so every output is traceable back to the numbers you typed in.
How should I enter current gdp?
Use the value you actually have, in the unit shown next to the field. Enter every value in the same unit system. The calculator assumes the figures you supply are consistent, so it cannot correct a mistake that happens before the calculation starts.
Do I have to fill in every field?
Only the fields a particular result depends on. If you leave one blank, the results that need it simply show a note instead of a number, and everything else still works.
Does anything you type get stored?
No. The whole calculation runs inside your browser, and nothing you enter is uploaded, logged or sent anywhere.