The many faces of the taylor rule for advanced undergraduate macroeconomics

Abstract

The Taylor Rule and Fisher Relation can be represented on a graph that allows for discussion of the zero lower bound on interest rates, the existence of multiple equilibria, secular stagnation and Japan’s lost decade, among other issues. The Taylor Rule and Fisher Relation can also be included in a small macroeconomic model that can be used to study the stability under various interest rate rules under adaptive expectations or solved under rational expectations. There are a number of related empirical exercises using both descriptive statistics and regressions for undergraduates with intermediate macro level knowledge.