John taylor's research wascapsilated in the idea of what has come to be called the tailor rule. It is a relationship between the growth rate and the economy, the overall inflation rate and interest rates. And it says the interest trade should be higher if inflationis higher. So te inflation is four, five, six % sat, i should be higher. If the economy is doing poorly, it should be lower. The economy is doing better, itshould be higher. When they get out of wack, things ripple through the rest of through te economy that are not so healthy.
What's so bad about rising inflation? Why should we aim for a rate of 2 percent? Why is it a problem if interest rates are too low--and what do we mean by inflation, anyway? Stanford University's John Taylor talks with EconTalk host Russ Roberts about these questions, the Taylor Rule, why inflation is rising, and what the Fed should do about it. At the end of the conversation, Taylor discusses whether stimulus stimulates and the dangers of the national debt.