Taylor rule calculator

Turn an equilibrium real rate, inflation, an inflation target, and an output gap into a suggested short term policy rate. This is a transparent classroom yardstick from the classic Taylor 1993 sketch. It is not a forecast, not a voting rule, and not investment advice. The arithmetic runs entirely in your browser.

A long run real rate thought to be consistent with stable inflation when the economy is at potential. This is an assumption you type, not a live official series.

The inflation reading you want to feed the rule. Look up CPI, CPIH, or PCE from ONS, BLS, BEA, or FRED, then type the number yourself.

A numerical goal such as 2 percent. The Bank of England’s CPI target and the Federal Reserve’s longer run PCE goal are both commonly stated at 2 percent.

Positive means actual output sits above potential. Negative means slack. The gap is an estimate, not a shop receipt. See the output gap explainer.

Classic Taylor 1993 classroom weight on (π − π*). Default 0.5. Raise or lower it to explore later variants.

Classic classroom weight on the output gap. Default 0.5. Some later rules use a different activity weight.

Optional. Type a federal funds rate or Bank Rate if you want the gap between the suggestion and that actual rate. Leave blank to hide the comparison.

Suggested nominal policy rate

Classic classroom form: r* + π + (inflation gap coefficient × inflation gap) + (output gap coefficient × output gap).

Neutral nominal rate (r* + π)

Starting point before the two gap adjustments.

Inflation gap contribution

Output gap contribution

Approximate implied real suggested rate

Suggested nominal rate minus inflation. Fast classroom subtraction. It is not the more precise multiplicative real rate, and it is not a recommended return.

How to read this. The headline number is a suggested nominal policy rate from a transparent formula, not a prediction of the next Bank of England or Federal Reserve decision. Neutral nominal is r* plus current inflation. The inflation gap term then adds (or subtracts) a share of how far inflation sits from target. The output gap term does the same for activity versus potential. Adding those three pieces recovers the suggestion. The implied real figure is only subtraction, so treat it as a sketch. Compare it with the real interest rate calculator if you want the multiplicative form. A gap versus an actual rate you typed is a comparison of two numbers you chose, not a verdict that policy is “too easy” or “too tight.”
Example defaults

Defaults (r* = 2, inflation = 2, target = 2, output gap = 0, both coefficients = 0.5) give a suggested nominal rate of 4 percent. If you change inflation to 3 and the output gap to 1, the same coefficients give 6 percent. Those figures are classroom arithmetic. They are not a claim about current Bank Rate or the federal funds rate.

Educational only

Not investment advice. Nothing here recommends buying, selling, or holding any security, currency, or derivative, or timing a policy meeting. r* and the output gap are estimates that researchers revise. US and UK policy instruments differ: the usual US comparison is the federal funds rate, while the usual UK comparison is Bank Rate. The calculator does not fetch live data, add rate smoothing, or model quantitative easing.

The classroom formula

This page uses the classic educational sketch associated with Taylor’s 1993 illustration:

Suggested policy rate ≈ r* + π + 0.5 × (π − π*) + 0.5 × y

Here r* is the equilibrium real rate, π is inflation, π* is the inflation target, and y is the output gap as a percent of potential. The 0.5 weights are the usual classroom starting point. You can edit both coefficients above to see how later variants change the suggestion. Because inflation appears both as the starting addend and inside the inflation gap, the total response of the suggested nominal rate to inflation is stronger than one for one when the inflation coefficient is 0.5. That is the classroom version of leaning against price pressure in real terms.

For the ideas, caveats, and why people treat the rule as a benchmark rather than a law, read what the Taylor rule is. For the activity input, read the output gap. For nominal versus inflation adjusted rates, read real interest rates explained.

Where to find the inputs

Type your own numbers. This page does not download official series. For a US sketch, look up inflation at BLS (CPI) or BEA (PCE), and look up the federal funds rate on FRED or Federal Reserve materials. Potential output and gap estimates circulate from the CBO and research variants. For a UK sketch, look up CPI or CPIH at ONS and Bank Rate at the Bank of England. Spare capacity is discussed in Bank communications, not as a single barcode reading. Broader context sits on the monetary and fiscal policy pillar and the inflation pillar.

UK and US framing

Cross country readers should not paste a US calibrated recipe onto UK data without checking the inflation target concept, the gap measure, and the instrument name. A 4 percent suggestion next to the federal funds rate is not the same comparison as a 4 percent suggestion next to Bank Rate. Mandates, price indexes, and operating frameworks differ. Use primary materials from the Federal Reserve and the Bank of England before treating percentage points as interchangeable.

Sources

All calculators · Real interest rate calculator · Inflation adjuster · Taylor rule explained · Output gap · Real interest rates · Monetary and fiscal policy · Inflation topic · FAQ