Here I introduce the Taylor rule, a rule of thumb for determining the target Fed Funds rate.
Пікірлер: 42
@WaK3UpBoY6 жыл бұрын
best at 1.5 speed
@ryscalwis44602 жыл бұрын
just like my lectures
@yannylaurel15883 жыл бұрын
Fantastic explanation!! thanks! greetings from 2020
@hanhangao65417 жыл бұрын
This is awesome! very well structured and clear illustrated!
@cheonsoti9 жыл бұрын
thank you thank you thank you!
@Chris-fg7se Жыл бұрын
Thanks for the informative video.
@celicabroski10 жыл бұрын
as he mentions that other people put more weight on the "a" variable, this is true, although as a better rule of thumb my macro econ professor suggests that "a" should be set higher than the real interest rate. i felt like that needed to be added.
@qiangqiangsanren9 жыл бұрын
Thanks for this great video!
@axe86311 жыл бұрын
Even if agents-higher order structures were non-strategic, endogenous market incompleteness countercyclicality did not exist & there wasn't a weight on asset prices, the Taylor Rule would still be nonlinear because of the reduced sacrifice ratio under sufficiently high monetary credibility.
@matthiasschepers79207 жыл бұрын
So as i understood you: a+b=1. Its just weighted with 0.5 and 0.5 in your example? It can also be 0.3 and 0.7 but never 0.3 and 0.6 for example?
@BurkeyAcademy7 жыл бұрын
Technically a policy group could choose any weight they want.- they don't have to add up to 1. Taylor himself initially (1993) favored that a and b both be around 0.5, but later (in 1999) suggested that a should be around 0.5, but b could be anything greater than or equal to 0, depending how one wants to prioritize the output gap compared to controlling inflation. So, there are probably many differing opinions about what a and b should be, and some people probably think the Taylor Rule is silly altogether!
@henokarega41236 жыл бұрын
Sure that is absolutely right. The weight of a and b shows to what extent the policy makers give importance to inflation and GDP (employment). The parameters of a and b are completely independent.
@paulturner4419 Жыл бұрын
So it looks like we currently need rates above 10% to curb inflation 😮
@informationhub55486 жыл бұрын
Why to target interest rate rather than stable monetary policy
@vegasastras53674 жыл бұрын
Sorry, is potential GDP = the trend = steady state?
@Pranav-rp8wi5 жыл бұрын
why all US profs are super excited in lectures?
@negarabbaspourmani81992 жыл бұрын
Awsome, couldn't be more clear! Thanks!
@Honingfrodisiac11 жыл бұрын
Thanks a lot for this clear video, my monetary economics exam tomorrow is suddenly looking a lot more doable!
@shandichen10 жыл бұрын
thanks a lot ! It's clear to me
@peters9725 жыл бұрын
Lower interest rates encourage house purchases due to low mortgage rates, however, since this also comes with low inflation rates: house prices do not tend to rise. This makes them turn over less, and is killing the industry in some parts.
@FYGOKENTROSS10 жыл бұрын
Why do they mention the use of log, for GDP, in some sources? I never understood...
@BurkeyAcademy10 жыл бұрын
Because subtracting the logarithms of two numbers is a way of calculating their percentage difference. For example, ln(204)- ln(200) =.0198, or a 1.98% difference. You can also get the same answer by doing ln(204/200)=.0198.
@FYGOKENTROSS10 жыл бұрын
BurkeyAcademy Thank you so much! Great video, btw :-))
@yanksfan4ever17 жыл бұрын
So what happens if output increases, and inflation decreases or vice versa?
@BurkeyAcademy7 жыл бұрын
Well, if output gets closer to full employment you'd want to increase rates. If inflation goes down, that would be a reason to cut rates. So, depending on the magnitude of the changes, and on the relative importance policy makers put on GDP and inflation at that moment, they could either do nothing, or go either way.
@carlodlg54037 жыл бұрын
what are alpha and beta and why .5 is an optimal value for them?
@BurkeyAcademy7 жыл бұрын
a and b are the "weights" you put on correcting the inflation gap and output gap. No one knows the "optimal" value,s it will be different depending on the importance a policy maker puts on these two goals. Using 0.5 for each seems to 1) weight the two goals equally, and 2) pretty closely mimic how the US federal reserve had behaved over much of the last 20 years or so.
@danielk64306 жыл бұрын
life saver!
@MiltonDelo8 жыл бұрын
Is inflation targeting the same as inflation forecasting?
@BurkeyAcademy8 жыл бұрын
+Milton Delo Not in my opinion... Suppose you are steering a boat in the fog. Forecasting is trying to figure out what in the heck is in front of you through the fog. Targeting is knowing where you'd like your destination to be. The two are linked of course, but forecasting (trying to tell the future) it almost impossible, while steering is pretty difficult in certain circumstances, but a little less hard as long as you know where you are.
@alejandrovelezph.d.51506 жыл бұрын
The Federal Reserve does not create money but rather can increase the amount of bank reserves which then can sustain money creation by the banking system.
@BurkeyAcademy6 жыл бұрын
The federal reserve can create money, simply by spending money, or by giving a bank a discount window loan (rare, but possible).
@ssmm61716 жыл бұрын
Very good video, Thank you. Can I ask about the determinants of the weights a and b? specifically, I would like to know if the investors become more sensitive to the interest rate, will this affect the parameters a or b?
@BurkeyAcademy6 жыл бұрын
As I understand it, a and b are picked by the government or policy maker to balance how important they feel reducing unemployment or keeping inflation down are, since if you believe in the Phillips curve, there is a tradeoff there. If the Fed or whoever started to see that investors (in things like factories, for example) were VERY sensitive to interest rate rises, causing much larger drops in GDP for interest rate rises, you might want to lower your value for b.
@eramkinta26848 жыл бұрын
How to derive the Taylor Rule?
@BurkeyAcademy8 жыл бұрын
+Eram Kinta As far as I know there is not derivation. It is just a simple equation that is supposed to be practical, easy to understand, and also describe how recent central banks actually behave. I suggest reading Taylor's original paper: www.stanford.edu/~johntayl/Papers/Discretion.PDF
@nguyenkim2910 жыл бұрын
Thanks for your video, I would like to study more about taylor rule, could you recomend me some books to read about it?
@BurkeyAcademy10 жыл бұрын
I haven't read it, but "The Taylor Rule and the Transformation of Monetary Policy" looks very interesting. It is a collection of essays by some of the greats, including Taylor himself, Lucas, Bernanke... It might be a great read!
@nguyenkim2910 жыл бұрын
BurkeyAcademy Thank you so much for your help I really appreciate it.
@jayshreejazz9 жыл бұрын
BurkeyAcademy Is this the same one? But u said it was a book. this is a thesis it seems. Pls reply www.kc.frb.org/publicat/reswkpap/pdf/rwp07-11.pdf
@BurkeyAcademy9 жыл бұрын
Jayshree Dutta This one: www.amazon.com/Taylor-Transformation-Monetary-Institute-Publication/dp/0817914048/ref=sr_1_1?ie=UTF8&qid=1415767651&sr=8-1&keywords=taylor+rule#reader_B0092RDR8Y