is the deviation of the actual inflation rate p from its target p * in period t ; and yt — yt *, the “ output gap, ” is the deviation of actual real output y from potential output y * in period t. the parameters a and b are positive numbers that describe how strongly the policy rate should respond to deviations of inflation from its target and of output from its potential. as we would expect, the taylor rule tells policymakers that interest rates should be higher when inflation is above target, ( pt — pt * ) > 0, or when output is above its potential, ( yt — yt * ) > 0. taylor ( 1993 ) estimated the long - run real value of the federal funds rate to be about 2 percent. the equation for the taylor rule accordingly shows that when inflation and output are equal to their targets, the federal funds rate – which is expressed here in nominal terms – should equal 2 plus the rate of inflation. equivalently, when inflation and output equal their targets, the real value of the federal funds rate should equal 2 percent. to make the taylor rule equation shown in slide 2 operational, one needs to specify numerical values for the coefficients a and b, choose appropriate indicators of inflation and output, and specify a target rate for inflation and a measure of potential output. in his 1993 paper introducing his eponymous rule, taylor suggested setting both a and b equal to 0. 5. so, for example, according to the original taylor rule, if output rises 1 percent relative to its potential, then, all else equal, the federal reserve should raise its policy rate by 0. 5 percent, or 50 basis points. following taylor ’ s suggestions for parameter values, in slide 3 we show by the dashed red line the values of the federal funds rate implied by the taylor rule for the period from 2000 to the present, with inflation measured by the consumer price index ( cpi ), kohn ( 2007 ) discusses some of these limitations and anticipates some of the points made in my remarks today. the fed ’ s assumed inflation target set to 2 percent, output measured by real gdp, and the output gap as estimated retrospectively by the federal reserve ’ s primary forecasting model, the frb / us model. the taylor rule prescription is juxtaposed with the actual path of the policy rate taken from slide 1, again shown in blue. the comparison displayed in slide 3 provides the most commonly cited evidence that monetary policy was too

bank has been providing fully funded scholarships to five outstanding economics students at third and fourth year levels. this support is also expected to shift to postgraduate economics programmes as soon as the modalities are agreed between the two institutions. vice chancellor, we are aware that the supplementary funds provided by boz cannot meet all your requisite needs with regard to enhancing your research capacity. i therefore urge you to forge other linkages that promote research. i have in mind the african economic research consortium ( aerc ) whose principle objective is to strengthen local capacity for conducting independent, rigorous inquiry into problems pertinent to the management of economies in sub - saharan africa. aerc was established in 1988 as a public not - for - profit organization devoted to advanced policy research and training in economics. however, it is rare to find zambians utilizing the facilities which are offered by this organization. our hope is that with this information, we will see more papers by unza academicians on the aerc website in the near future. in order to encourage research on local issues by our own researchers, i am contributing an book to the unza library by professor paul collier, the director for the study of african economies at oxford university. the book, “ the bottom billion ” provides an example of the sort of issues which we expect our own authors to be able to elucidate on more clearly from their own experiences. in the book, collier analyses the causes of failure by fifty failed states, pointing to a set of traps that snare these countries. these traps include civil war, a dependence on extraction and export of natural resources, being land - locked, and bad governance. surely our experience with some of these “ traps ” should make us better experienced to explain the issues. this is what we expect of unza. vice chancellor, on our part, we will continue to assist unza as guided by the mou. we are very confident that the support that unza is receiving from partners such as boz will go a long way in furthering academic excellence and uplifting the levels of morale among faculty members. i thank you!