The following is a Taylor-rule for country D, r = 0.02 + 0.4((Y - Y*)/Y* ) +...
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The following is a Taylor-rule for country D,r = 0.02 + 0.4((Y - Y*)/Y* ) + 0.5π
where r is the real cash rate (interest rate, policy rate set by the Central Bank of country D), Y is output, Y* is potential output and π is the rate of inflation.
According
to this Taylor rule, if the output of country D is at its potential level and inflation is 1%, what will
be the value of the real cash rate, r?
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