Reading 23: Capital Market Expectations－LOS h central, Taylor

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CFA Institute Area 6: Economics
Session 6: Economic Concepts for Asset Valuation in Portfolio Management
Reading 23: Capital Market Expectations
LOS h: Demonstrate the use of the Taylor rule to predict central bank behavior.

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Which of the following is NOT an input to the Taylor rule?

A) The expected GDP.

B) The expected inflation rate.

C) The discount rate.

D) The neutral rate.

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Answer and Explanation

The Taylor rule determines the target interest rate using the neutral rate, expected GDP relative to its long-term trend, and expected inflation relative to its targeted amount.