Taylor Rules Vs Monetary Conditions Index

Forgot to include to the Average Inflation Target article.

The previous model to Taylor Rules was the Monetary Conditions Index. Both were designed to assess where is the appropriate level of the Fed funds Rate yet applies to any nation to determine the correct level of Interest rates.

Fed Funds vs Taylor Rules correct level: 1.207

Taylor Rules to determine the correct rate of the 90 Day Interest rate. 1.94

So 1.20 and 1.94 Vs Headline 0.25 and current overnight Rate 0.08

Taylor Rule Calculations

 

Target = Inflation + 0.5 X (Inflation – Inflation) +0.5 X (GDP Minus GDP) + Interest (Overnight rate)

 

Taylor Rules 90 Day Rate

Target = 90 Day Rate + Inflation Target + 1.5 X (Inflation – Inflation) +0.5

Technically the Output Gap supposed to include as the last term but its not necessary.

Monetary Conditions Index

 

The Monetary Conditions Index gauges the level of the interest rate and Exchange Rate to the Trade Weight Index. Its a fabulous tool and reveals much. See the EUR chart below. We don’t hear about MCI anymore but we hear about Taylor Rules yet its a vital tool.

 

Monetary Conditions Index EUROPE

Click to access mci.pdf

 

Click to access confp06i.pdf

Click to access confp06i.pdf

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s