Editing Taylor rule (section)

== Limitations ==
The Taylor rule is debated in the discourse of the rules vs. discretion. Limitations of the Taylor rule include.

* The 4-month period typically used is not accurate for tracking price changes and is too long for setting interest rates.<ref>{{Cite journal |last=Taylor |first=John B. |date=1993-12-01 |title=Discretion versus policy rules in practice |url=https://web.stanford.edu/~johntayl/Onlinepaperscombinedbyyear/1993/Discretion_versus_Policy_Rules_in_Practice.pdf|journal=Carnegie-Rochester Conference Series on Public Policy |language=en |volume=39 |pages=195–214 |doi=10.1016/0167-2231(93)90009-L |issn=0167-2231}}</ref> 
* The formula incorporates unobservable parameters that can be easily misevaluated.<ref name="Boris Hofmann 2012" /> For example, the output gap cannot be precisely estimated.
* Forecasted variables such as the inflation and output gaps, are not accurate, depending on different scenarios of economic development.
* Difficult to assess the state of the economy early enough to adjust policy.
* The discretionary optimization that leads to stabilization bias and a lack of history dependence.<ref name="Lars E. O 2003" />{{Clarify|reason=gibberish|date=November 2022}}
* The rule does not consider financial parameters. 
* The rule does not consider other policy instruments such as reserve funds adjustment or balance sheet policies.<ref name="Boris Hofmann 2012" />
* The relationship between the interest rate and aggregate demand.<ref name="solvency" />

Taylor highlighted that the rule should not be followed blindly: "…There will be episodes where monetary policy will need to be adjusted to deal with special factors."<ref name="John B. Taylor 1993" />