of u *. plugging these estimates into a 1993 taylor rule produces a federal funds rate very close to our current target range for the policy rate. 16 so with the economy operating at or very close to the fed ’ s dualmandate objectives and with the policy rate in the range of fomc participants ’ estimates of neutral, we can, i believe, afford to be data dependent — in both senses of the term as i have discussed — as we assess what, if any, further adjustments in our policy stance might be required to maintain our dual - mandate objectives of maximum employment and price stability. it is important to note that the range of model estimates that is shown in the shaded portion of figure 6 is not a confidence interval. if parameter uncertainty in the estimates was allowed for, the range would be wider still. yield curve data can also be used to compute estimates of the neutral rate of interest, as in bauer and rudebusch ( 2019 ). figure 7 summarizes the overall pattern displayed over time of various model - based estimates of r *. recent r * estimates from the models considered, as well as their confidence intervals, are shown in figure 8. the sources for both figures are given at the bottom of figure 8. - 13 references bauer, michael d., and glenn d. rudebusch ( 2018 ). “ interest rates under falling stars, ” frbsf working paper 2017 - 16. san francisco : federal reserve bank of san francisco, december ( revised january 2019 ), https : / / doi. org / 10. 24148 / wp2017 - 16. bennett, amanda ( 1995 ). “ inflation calculus : business and academia clash over a concept : ‘ natural ’ jobless rate, ” wall street journal, january 24. bernanke, ben s., thomas laubach, frederic s. mishkin, and adam s. posen ( 1999 ). inflation targeting : lessons from the international experience. princeton, n. j. : princeton university press. board of governors of the federal reserve system ( 2018 ). monetary policy report. washington : board of governors, july, https : / / www. federalreserve. gov / monetarypolicy / files / 20180713 _ mprfullreport. pdf. — — — ( 2019 ). monetary policy report. washington : board of governors, february, https : / / www. federalreserve. gov / monetarypolicy

. 6 first, the rule should anchor the nominal policy rate at a level equal to the sum of its estimate of the neutral real interest rate ( r * ) and the inflation target. second, to achieve this nominal anchor, the central bank should be prepared to raise the nominal policy rate by more than one - for - one when inflation exceeds target ( the taylor principle ). and, third, the central bank should lean against the wind when output — or, via an okun ’ s law relationship, the unemployment rate — deviates from its estimate of potential ( u * ). in other words, whereas in friedman ’ s k - percent policy rule u * and r * are destinations irrelevant to the choice of k, in the taylor rule — and most subsequent taylor - type rules — u * and r * are necessary inputs. as woodford ( 2003 ) demonstrates theoretically, the first two requirements for a taylor - type rule are necessary for it to be consistent with the objective of price stability. the third requirement — that monetary policy lean against the wind in response to an output or unemployment gap — not only contributes to the objective of price stability, but is also obviously desirable from the perspective of a central bank like the fed that has a dual mandate. the taylor approach on the specification and properties of the taylor rule, see especially taylor ( 1993, 1999 ) as well as clarida, gali, and gertler ( 1999, 2000 ) and woodford ( 2003 ). another key study of simple interest rate rules was henderson and mckibbin ( 1993 ). it should be noted that a taylor type rule is an instrument rule for achieving the inflation objective that enters the rule. in practice, it is one way to implement a flexible inflation targeting regime. see bernanke and others ( 1999 ) and svensson ( 1997, 1999 ) for important contributions on the considerations involved in specifying an inflation - targeting monetary policy strategy. - 5to instrument - rule specification has been found to produce good macroeconomic outcomes across a wide range of macroeconomic models. moreover, in a broad class of both closed and open economy dynamic stochastic general equilibrium, or dsge, models, taylor - type rules can be shown to be optimal given the underlying micro foundations of these models. in original formulations of taylor - type rules, r * was treated as constant and set equal to 2 percent, and potential output was set equal to the congressional budget office ( cbo ) estimates of potential