🏛️ Taylor Rule Calculator
Estimate a suggested central bank policy interest rate using the classic Taylor Rule formula from monetary economics.
What the Taylor Rule does
The Taylor Rule is a well-known formula from monetary economics that suggests what a central bank’s short-term policy interest rate should be, based on how far inflation is from its target and how far output is from its potential (the output gap).
The formula
The classic Taylor Rule is: policy rate = equilibrium real rate + current inflation + 0.5 x (inflation – inflation target) + 0.5 x (output gap). When inflation runs above target or the economy is running above potential, the formula recommends a higher interest rate to cool activity; when inflation is below target or output is weak, it recommends a lower rate.
This calculator is for general economics education and planning discussion only. Actual central bank decisions weigh many additional factors beyond this simplified rule, and real-world policy rarely follows the formula mechanically.