Return to Contents Page

 


Taylor Rules

The Taylor Rule might be viewed as either a description of U.S. monetary policy under Alan Greenspan or as a description of how monetary policy ought to be conducted.

From Interview with John B. Taylor, Federal Reserve Bank of Minneapolis, June 2006:

"In 1992, Stanford University economist John Taylor developed a simple equation that, using grade school math and only three variables, told the Federal Reserve what to do:

r = p + .5y + .5(p - 2) + 2

where   r     is the federal funds rate
             p    is the rate of inflation over the previous four quarters
             y    is the percentage deviation of real GDP from a target.

The r, of course, is what the Federal Open Market Committee deliberates at every meeting, and Taylor's formula not only described past Fed policy moves with startling precision, but also provided a systematic method for making future r decisions."

References

Interview with John B. Taylor, Federal Reserve Bank of Minneapolis, June 2006.

Taylor rules, OK?, New Economist, 8/10/05.

Discretion versus policy rules in practice, John R. Taylor.

Thirty Five Years of Model Building for Monetary Policy Evaluation: Breakthroughs, Dark Ages, and a Renaissance, John B. Taylor.

What is Taylor's rule and what does it say about Federal Reserve monetary policy?, Federal Reserve Bank of San Francisco.

Taylor Rule, Wikipedia.

Comments?  Questions?  macro-at-econmodel-dot-com  Copyright 2006 William R. Parke