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Generalizing the Taylor Principle
Social Science Research Network
Recurring change in a monetary policy function that maps endogenous variables into policy choices alters both the nature and the efficacy of the Taylor principle---the proposition that central banks can stabilize the macroeconomy by raising their interest rate instrument more than one-for-one in response to higher inflation. A monetary policy process is a set of policy rules and a probability distribution over the rules. We derive restrictions on that process that satisfy a long-run Taylordoi:10.2139/ssrn.932648 fatcat:ftg7rptwjbebtifai7jzft3q7a