Taylor Rule Deviations Across Horizons: A Practical Tool for Monetary Policy

Abstract We propose “Taylor rule yields” across horizons for the United States. Applying the standard Taylor rule to expected paths of inflation and the output gap, we construct a sequence of short‐term rates under neutral monetary policy stances, whose average defines the Taylor rule yield at each horizon. Taylor rule deviations (TRDs), the gaps between market‐expected rates and these yields, excluding risk premia, capture the effective stance of monetary policy even under the effective lower bound (ELB). TRDs also help disentangle the role of the ELB from other factors, offering insight into the severity and nature of the policy constraint.