Figure 2
The vertical axis is labeled “Rate”, ranging from negative 5.00 to 20.00 in increments of 5.00 units. The horizontal axis shows a continuous sequence of observations from left to right. At the bottom, the legend includes “Actual Federal Funds Rate” shown as a solid line, “Taylor Rule-Hodrick-Prescott” shown as a solid lighter line, “Taylor Rule-Christiano-Fitzgerald” shown as a dotted line, and “Taylor Rule by Exponential Regression” shown as a dashed line. The solid line “Actual Federal Funds Rate” starts near 1.0, rises to around 5.0, declines sharply to negative 3.0, then remains near 0.0 for an extended period, increases slightly to around 2.0, drops again to negative 3.0, and ends near 2.0. The solid lighter line “Taylor Rule-Hodrick-Prescott” begins near 4.0, increases to around 8.0, drops to 0.0, rises again near 6.0, declines to around 2.0, dips slightly below 0.0, and then increases sharply to end at 14.0. The dotted line“Taylor Rule-Christiano-Fitzgerald” starts near 5.0, rises to around 8.0, drops near 0.0, fluctuates between 2.0 and 6.0, dips slightly below 0.0, and ends near 14.0. The dashed line “Taylor Rule by Exponential Regression” starts near 6.0, rises to around 9.0, drops to near 0.0, fluctuates between 3.0 and 6.0, dips below 0.0, and then increases sharply to end at 15.0. All series show pronounced declines and recoveries over time. Note: All numerical data values are approximated.Actual vs policy rule in discretionary period. Source(s): Author’s own calculation