For every 1 percent increase in inflation, the Fed should increase the interest rate by 1.5 percent.Taylor makes several points regarding the general effectiveness of this rule, and argues several of the recent (last 20 or so years) recessions can be seen as the Fed falling off the rule. He says he is not opposed to more mechanization of Fed behavior but also thinks it is important to have a group of experts customizing those parameters to the times and events.
For every 1 percentage point below long-run GDP growth rate, the interest rate should be cut by 0.5 percent.
I wonder if Fed behavior would turn out differently if the "default" was the strict application of the Taylor Rule, and the Fed would then play the role of deciding if it should be overridden and augmented? Would this libertarian paternalism applied to the Fed make any difference? I have no idea, comments are open.