Taylor Rule Calculator

Written by Great Medico

Updated September 25, 2026 •2 min read

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A finance formula can look precise even when the assumptions behind it are doing most of the work. Taylor Rule Calculator keeps those assumptions visible and turns the fields on this page into one focused result. On this page, it produces a simplified policy-rate estimate from inflation, target inflation, GDP gap, and real interest rate.

What this calculator does

Taylor Rule Calculator produces a simplified policy-rate estimate from inflation, target inflation, GDP gap, and real interest rate. Its visible inputs are Current inflation, Target inflation, Current GDP, Long-run GDP, Real interest rate. The article follows those fields and the calculation that is actually available on this page; it does not silently add live market feeds, tax tables, legal eligibility tests, or other variables that are not present in the tool.

How to use it

Enter Current inflation, Target inflation, Current GDP, Long-run GDP, Real interest rate. Use the units and percentage scale shown beside each field, and keep values on the same time basis when the formula compares income, rates, prices, balances, or work hours.

How the calculation works

Policy-rate estimate = inflation + real interest rate + 0.5 × inflation gap + 0.5 × output gap, where inflation gap = current inflation − target inflation and output gap = (current GDP − long-run GDP) ÷ long-run GDP × 100.

Example

Using the page’s demonstration values (Current inflation = 3; Target inflation = 2; Current GDP = 1,010; Long-run GDP = 1,000) and leaving the remaining defaults unchanged, the calculator returns 6% for federal funds target rate. Replace the sample inputs with values from the same period and definition before interpreting your own result.

How to interpret the result

Read the result as a model of the economic relationship represented by the inputs, not as a forecast of what an economy, market, currency, or policy authority will do next. Economic data are definition-sensitive: nominal versus real values, time periods, population bases, and price indexes must be aligned before comparing results.

Limitations and notes

The formula is a simplified Taylor-style rule with fixed 0.5 weights for inflation and output gaps; real central-bank decisions use broader information and do not mechanically follow this page. Simplified macroeconomic formulas hold other influences constant. Revisions to source data, measurement definitions, expectations, policy responses, market frictions, and nonlinear behavior can make real-world outcomes differ from the clean relationship shown here.