Usage
Here are some basic examples of how to use PyEconomics for calculating and visualizing monetary policy rules.
Example 1: Calculate Current Policy Rule Estimates
# Import pyeconomics
import pyeconomics as pyecon
# Calculate policy rule estimates
policy_estimates = pyecon.calculate_policy_rule_estimates(verbose=True)
Verbose Print Statement:
┌───────────────────────────────────────────────────────────────────────────────────┐
│ Interest Rate Policy Estimates │
├───────────────────────────────────────────────────────────────────────────────────┤
│ Taylor Rule (TR) 6.17% │
│ Balanced Approach Rule (BAR) 6.68% │
│ Balanced Approach Shortfalls Rule (BASR) 5.66% │
│ First Difference Rule (FDR) 5.97% │
├───────────────────────────────────────────────────────────────────────────────────┤
│ Federal Funds Rate (FFR) 5.50% │
├───────────────────────────────────────────────────────────────────────────────────┤
│ As of Date May 20, 2024 │
├───────────────────────────────────────────────────────────────────────────────────┤
│ Policy Prescription │
├───────────────────────────────────────────────────────────────────────────────────┤
│ Taylor Rule (TR) suggests raising the rate by 0.75%. │
│ Balanced Approach Rule (BAR) suggests raising the rate by 1.25%. │
│ Balanced Approach Shortfalls Rule (BASR) suggests raising the rate by 0.25%. │
│ First Difference Rule (FDR) suggests raising the rate by 0.50%. │
└───────────────────────────────────────────────────────────────────────────────────┘
Example 2: Adjust Taylor Rule for Effective Lower Bound (ELB) and Policy Inertia
# Import pyeconomics
import pyeconomics as pyecon
# Adjustment Parameters
rho = 0.7 # Policy Inertia Coefficient
apply_elb = True # Apply Effective Lower Bound
adjusted_policy_estimates = pyecon.calculate_policy_rule_estimates(
rho=rho,
apply_elb=apply_elb,
verbose=True
)
Verbose Print Statement:
┌───────────────────────────────────────────────────────────────────────────────────┐
│ Adjusted Interest Rate Policy Estimates │
├───────────────────────────────────────────────────────────────────────────────────┤
│ Taylor Rule (TR) 5.70% │
│ Balanced Approach Rule (BAR) 5.86% │
│ Balanced Approach Shortfalls Rule (BASR) 5.55% │
│ First Difference Rule (FDR) 5.64% │
├───────────────────────────────────────────────────────────────────────────────────┤
│ Federal Funds Rate (FFR) 5.50% │
├───────────────────────────────────────────────────────────────────────────────────┤
│ As of Date May 21, 2024 │
├───────────────────────────────────────────────────────────────────────────────────┤
│ Adjusted Policy Prescription │
├───────────────────────────────────────────────────────────────────────────────────┤
│ Taylor Rule (TR) suggests raising the rate by 0.25%. │
│ Balanced Approach Rule (BAR) suggests raising the rate by 0.25%. │
│ Balanced Approach Shortfalls Rule (BASR) suggests maintaining the current rate. │
│ First Difference Rule (FDR) suggests raising the rate by 0.25%. │
└───────────────────────────────────────────────────────────────────────────────────┘
Example 3: Calculate Current Taylor Rule Estimates
# Import pyeconomics
import pyeconomics as pyecon
# Calculate policy rule estimates
policy_estimates = pyecon.taylor_rule(verbose=True)
Verbose Print Statement:
==== Economic Indicators =================================================
Current Inflation: 3.04%
Target Inflation: 2.00%
Current Unemployment Rate: 3.90%
Natural Unemployment Rate: 4.41%
Long-Term Real Interest Rate: 2.10%
Current Fed Rate: 5.50%
As of Date: May 21, 2024
==== Gaps ================================================================
Inflation Gap: 1.04%
Unemployment Gap: 0.51%
==== Taylor Rule =========================================================
Long-Term Real Interest Rate: 2.10%
Current Inflation: + 3.04%
Alpha * Inflation Gap: + 0.50 * 1.04%
Beta * Okun Factor * Unemployment Gap: + 0.50 * 2.00 * 0.51%
--------------------------------------------------------------------------
Unadjusted Taylor Rule Estimate: 6.17%
==== Adjusted Taylor Rule ================================================
Effective Lower Bound (ELB) Adjustment:
Maximum of Taylor Rule or ELB: max(6.17%, 0.12%)
--------------------------------------------------------------------------
Taylor Rule Adjusted for ELB: 6.17%
Policy Inertia Adjustment:
Policy Inertia Coefficient (rho): 0.70
Current Fed Rate: * 5.50%
Adjustment Coefficient (1 - rho): + (1 - 0.70)
Taylor Rule Adjusted for ELB: * 6.17%
--------------------------------------------------------------------------
Adjusted Taylor Rule Estimate: 5.70%
==== Policy Prescription =================================================
The Adjusted Taylor Rule Estimate is 0.20% higher than the Current
Fed Rate. The Fed should consider raising the interest rate by 0.25%.
Example 4: Calculate and Plot Historical Policy Rule Estimates
# Import pyeconomics modules
import pyeconomics as pyecon
# Calculate historical policy rates
historical_policy_estimates = pyecon.calculate_historical_policy_rates().dropna()
# Plot historical policy rates
pyecon.plot_historical_rule_estimates(historical_policy_estimates)
Example 5: Calculate and Plot the Adjusted Historical Policy Rules
# Import pyeconomics modules
import pyeconomics as pyecon
# Adjustment Parameters
rho = 0.7 # Policy Inertia Coefficient
apply_elb = True # Apply Effective Lower Bound
# Calculate adjusted historical policy rates
adjusted_historical_policy_estimates = pyecon.calculate_historical_policy_rates(
rho=rho,
apply_elb=apply_elb
).dropna()
# Plot adjusted historical policy rates
pyecon.plot_historical_rule_estimates(
adjusted_historical_policy_estimates,
adjusted=True
)
