# How Central Banks Use the Taylor Rule

Page: https://stenobird.com/podcast/monetary-policy-explained-with-fexingo-central-banks-money-supply-and-interest-rates-7872013/how-central-banks-use-the-taylor-rule
Text version: https://stenobird.com/podcast/monetary-policy-explained-with-fexingo-central-banks-money-supply-and-interest-rates-7872013/how-central-banks-use-the-taylor-rule.md
Podcast: [Monetary Policy Explained with Fexingo: Central Banks, Money Supply, and Interest Rates](https://stenobird.com/podcast/monetary-policy-explained-with-fexingo-central-banks-money-supply-and-interest-rates-7872013)
Published: 2026-07-10T19:54:20+00:00
Episode link: https://audio.fexingo.com/business/monetary-policy-explained/episode-0103.mp3
Audio file: https://audio.fexingo.com/business/monetary-policy-explained/episode-0103.mp3
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JSON: https://stenobird.com/v1/public/podcasts/monetary-policy-explained-with-fexingo-central-banks-money-supply-and-interest-rates-7872013/episodes/how-central-banks-use-the-taylor-rule
Duration seconds: 428

## Resource

In this episode of Monetary Policy Explained with Fexingo, Lucas and Luna take a deep dive into the Taylor Rule—the simple formula central bankers use to set interest rates based on inflation and output gaps. Using the current mid-2026 environment as a backdrop, they explain how the rule works, why it's been controversial since the 2007-2009 financial crisis, and how the Federal Reserve has adapted it over time. They walk through a concrete example: if inflation is 3% and the output gap is -1%, what should the policy rate be? They also discuss the limitations of the rule, from the zero lower bound to the r-star problem. The episode touches on John Taylor's original 1993 paper, the 1990s 'Taylor Rule era,' and why central bankers now treat the rule as a guide rather than a rigid formula. Listeners will come away understanding one of the most important concepts in modern monetary economics and how it shapes the rates on their mortgages and savings accounts. #TaylorRule #MonetaryPolicy #CentralBanks #FederalReserve #JohnTaylor #InterestRates #InflationTargeting #OutputGap #RStar #ZeroLowerBound #Economics #Macroprudential #FOMC #Fed #RuleBasedPolicy #FexingoBusiness #BusinessPodcast #MonetaryPolicyExplained Keep every episode free: buymeacoffee.com/fexingo

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