Taylor Rule Calculator

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The original Taylor (1993) rule uses equal weights of 0.5 on the inflation gap and output gap. The Balanced Approach doubles the output-gap weight to 1.0. Custom lets you set your own.
Annualized inflation rate, e.g. the year-over-year change in the PCE deflator or CPI. Expressed as a percentage (e.g. 4.0 for 4%).
%
The central bank's official inflation objective. The Federal Reserve targets 2% using the PCE deflator.
%
The percentage difference between actual GDP and potential GDP: (actual GDP - potential GDP) / potential GDP x 100. A negative value means the economy is below capacity (recession risk). A positive value means it is overheating.
%
The long-run "neutral" real interest rate that keeps the economy at potential with stable inflation. Commonly assumed to be 2%, though some economists place it closer to 0.5-1% post-2008.
%
The actual prevailing policy rate set by the central bank. Used to show the gap between the rule-implied rate and the current setting.
%
Prescribed policy rateFormula suggests tightening
6.5%

The nominal interest rate recommended by the Taylor Rule formula.

Inflation gap2pp
Implied real rate2.5%
Gap vs. current rate1.25pp
Inflation component1%
Output component-0.5%
Inflation component1
Output component-0.5
Gap vs. current rate1.25

The original Taylor (1993) prescribes a rate of 6.50%.

  • Inflation is 2.0 percentage points above target, pushing the prescribed rate higher than the neutral baseline.
  • The output gap is small, contributing little adjustment to the neutral baseline.
  • The current policy rate (5.25%) is 1.25 pp below the formula prescription, implying an accommodative stance.
  • The Taylor Rule is a benchmark, not a binding rule. Central banks consider financial stability, exchange rates, and uncertainty not captured in the formula.

Next stepCompare this result across variants by switching the rule selector. The difference between variants shows how sensitive the prescription is to the output-gap weight.

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