Optimal Taylor rule in the new era central banking perspective

Abstract

The Taylor rule is a simple monetary policy rule that specifies how central banks should adjust policy interest rate in response to inflation deviation and output gap. However, with the change in the central role of central banks in the economy after the 2008 global crisis, alternative monetary policy implementations have been brought to the agenda. In this study, the optimal interest of the Taylor rule in terms of interest rate approaching zero and macro prudential policy developed to regulate the financial system and prevent imbalances in the real sector after the global crisis is discussed in theoretical terms.

Keywords

• 2008 global crisis
• taylor rule
• macro prudential policy