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Taylor that would stipulate how much the Federal Reserve should change the interest rates in response to real divergences of real GDP from potential GDP and divergences of actual rates of inflation from a target rate of inflation. Discretionary policies are similar to "feedback-rule policies" used by the Federal Reserve to achieve price level stability. "Discretionary policies" refer to actions taken in response to changes in the economy, but they do not follow a strict set of rules, rather, they use subjective judgment to treat each situation in unique manner.
Time lags in discretionary fiscal policy can adversely affect the efforts of the Congress and the President in attempting to maintain a healthy economy because it takes time to ascertain the direction in which the economy is moving, to get a fiscal policy enacted into law, and for the policy to have its full effect on the economy...
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