So, for example, according to the original Taylor rule, if output rises 1 percent relative to its potential, then, all else equal, the Federal Reserve should raise its policy rate by 0.5 percent, or 50 basis points.
Following Taylor’s suggestions for parameter values, in Slide 3 we show by the dashed red line the values of the federal funds rate implied by the Taylor rule for the period from 2000 to the present, with inflation measured by the consumer price index (CPI),  5  Kohn (2007) discusses some of these limitations and anticipates some of the points made in my remarks today.