The year 2006 was excluded because actual policy and that prescribed by the 1993 Taylor rule were not significantly different in that year. When the 1993 Taylor rule is assumed to govern monetary policy, the simulated federal funds rate averages 2.6 percent from 2003 to 2005, 70 basis points higher than in the baseline.
The increase in the federal funds rate is less than the difference shown in Slide 4 because of feedback effects working through the economy; a less accommodative policy rule reduces output and inflation, which in turn limits the increase in rates implied by the policy rule. 8  BIS Review 1/2010  period.