Monetary policy reaction function
The monetary policy reaction function is a function that gives the value of a monetary policy tool that a central bank chooses, or is recommended to choose, in response to some indicator of economic conditions.
Examples
One such reaction function is the Taylor rule. It specifies the nominal interest rate set by the central bank in reaction to the inflation rate, the assumed long-term real interest rate, the deviation of the inflation rate from its desired value, and the log of the ratio of real GDP (output) to potential output.
Alternatively, Ben Bernanke and Robert H. Frank[1] present the function, in its simplest form, as an upward-sloping relationship between the real interest rate and the inflation rate:
- r = r* + g(π – π*)
where
- r = current target real interest rate
- r* = long-run target for the real interest rate
- g = constant term (or the slope of the MPRF)
- π = actual inflation rate
- π* = long-run target for the inflation rate
gollark: Including stuff like "read all of handle and then close it" (plus convenience stuff for fs.open/http.get), probably some of potatOS's random vaguely general-purpose stuff like compression, "safe" (de)serialization, map/reduce/filter/other stuff, randomly pick item from list, generate random bytestring, etc.
gollark: But also with other things.
gollark: Yes.
gollark: I quite like the FP style, but Lua makes it annoying, so I'm looking at making a FP/general convenience lib for potatOS.
gollark: The main large thing I work on is potatOS, which someone wanted me to rewrite in amulet, but that would be impractical as it's quite large and not really programmed in a very functional style.
References
- Bernanke, Ben, and Frank, Robert. Principles of Economics, 3rd edition.
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