The Taylor rule allows for strict inflation targeting as long as
A)the output coefficient is zero
B)the inflation coefficient is zero
C)the output coefficient is negative
D)the inflation coefficient is negative
E)none of the above

Question

Quizplus · Accepted Answer

The Taylor rule is an equation that provides guidance on how central banks should set their policy interest rates based on the level of inflation, output, and other factors. In its simplest form, the Taylor rule includes two coefficients: one for inflation and one for output. If the output coefficient is set to zero, it means that the central bank is not taking into account the state of the economy when setting interest rates, and is therefore strictly targeting inflation. This is known as strict inflation targeting, and A is the only answer choice that reflects this condition.

The Taylor Rule Allows for Strict Inflation Targeting as Long