Abstract: Despite the numerous literature studying the feasibility of the Taylor rule in China, most of the research con-

clude that China's central bank does not adjust the nominal interest rate to the output gap, which is inconsistent with the public commitment control target of the central bank. We measure the deviation between the actual output and potential out-put, by constructing pseudo output gap, and construct the Taylor rule including pseudo output gap. We find that China's central bank counter-cyclically adjust the nominal interest rate on pseudo output gap, through estimating the backward-looking and forward-looking Taylor rules. Such a regulation mode of monetary policy provides a guarantee for high growth of  output in recent years.

Keywords: Uncertainty of Output ; Output Gap;  Taylor Rules