# Taylor Rule Calculator

URL: https://speedycalculator.com/calculators/finance/taylor-rule/
Last updated: 2026-10-25

> The Taylor rule calculator works out the central bank policy rate suggested by the Taylor rule – from inflation, the inflation target, the output gap and the neutral real rate – and compares it with the actual policy rate.

## Inputs

- Inflation rate (%)
- Inflation target (%)
- Actual real GDP
- Potential real GDP
- Neutral real interest rate (r*) (%)
- Weight on inflation gap
- Weight on output gap
- Actual policy rate (%)

## Results

- Output gap
- Taylor rule rate
- Difference from the actual rate
- Policy stance

## Formula

```
i = r* + π + a × (π − π*) + b × (Y − Y*) ÷ Y* × 100
Original Taylor (1993): a = b = 0.5, r* = 2%, π* = 2%
```

## Explanation

John Taylor's rule gives a simple benchmark for the federal funds rate. Fed officials compare several variants (e.g. b = 1 or a lower neutral rate r* of about 0.5–1%).

### How to use the Taylor Rule Calculator

- **Inflation rate**
- **Inflation target**
- **Actual real GDP**
- **Potential real GDP**
- **Neutral real interest rate (r*)**
- **Weight on inflation gap**
- **Weight on output gap**
- **Actual policy rate**

Results update as you type, and every field accepts the units shown in its menu.

### How it works

Enter inflation, the target, actual and potential GDP (or the output gap), the neutral real rate, the weights and the actual policy rate.

### Tips

- Use real (inflation-adjusted) figures to compare across years.
- Check whether data are seasonally adjusted.
- Use the same currency and base year throughout.
- Economic models simplify reality – treat results as illustrations, not forecasts.

### Common mistakes to avoid

- Mixing nominal and real values.
- Comparing percentage changes with percentage-point changes.
- Treating correlations as causes.

### Inputs explained

FieldWhat to enterInflation rateIn %Inflation targetIn %Actual real GDPAmount in your currencyPotential real GDPAmount in your currencyNeutral real interest rate (r*)In %Weight on inflation gapA numberWeight on output gapA numberActual policy rateIn %

### What each result means

- **Output gap** = ([Actual real GDP] - [Potential real GDP])÷[Potential real GDP]×100
- **Taylor rule rate** = [Neutral real interest rate (r×)] + [Inflation rate] + [Weight on inflation gap]×([Inflation rate] - [Inflation target]) + [Weight on output gap]×[Output gap]
- **Difference from the actual rate** = [Actual policy rate] - [Taylor rule rate]

### Example values

How the main result changes when **Inflation rate** changes and everything else stays at the example values above:

Inflation rate (%)Taylor rule rate (%)1.452.392.183.472.94.563.635.654.356.745.88.91

## Worked example

Inputs — Inflation rate: 2.9 %; Inflation target: 2 %; Actual real GDP: $23,700; Potential real GDP: $23,600; Neutral real interest rate (r*): 1 %; Weight on inflation gap: 0.5; Weight on output gap: 0.5; Actual policy rate: 4 %.

Results — Output gap = 0.42 %; **Taylor rule rate = 4.56 %**; Difference from the actual rate = -0.56 %; Policy stance = Looser than the rule.

## FAQ

**What is the Taylor rule?**
A formula suggesting the policy interest rate from inflation and the output gap.

**Does the Fed follow the Taylor rule?**
It's one benchmark among several, not a strict rule.

**What is the neutral rate?**
The real rate that neither stimulates nor restrains the economy.

**What formula does the Taylor Rule Calculator use?**
i = r* + π + a × (π − π*) + b × (Y − Y*) ÷ Y* × 100.


## Sources

- [Federal Reserve – Policy rules and how policymakers use them](https://www.federalreserve.gov/monetarypolicy/policy-rules-and-how-policymakers-use-them.htm)