Yellen says this traditional monetary policy rule doesn’t work under current conditions
Fed chair Janet Yellen has said that the Taylor Rule – a monetary policy rule that compares inflation and actual GDP with potential GDP – doesn't work under current conditions.
Yellen noted in answer to financial services committee chairman Jeb Hensarling that the Taylor Rule would have prescribed negative interest rates.
That meant that other less traditional tools have been necessary.
The Federal Reserve has used both asset purchases and forward guidance to put downward pressure on long term interest rates.
