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Policy rules were the subject of much research in the 1970’s, 1980’s and 1990’s, but in the following years, until recently, there was a lull. Now there’s a big pickup, whether at conferences, in research papers, or in central bank publications, including whole new sections on rules in comparison with actual policy.
This lecture documents these developments, and offers possible explanations, including revealed preference by policymakers, the need to deal with the effective lower bound on the interest rate, disappointment with monetary policy in some countries leading to the global financial crisis, threats of legislation, and concerns about people kibitzing about policy without a monetary framework.
The talk examines key features of the revival, including that rules are usually stated in terms of policy instruments, rather than ‘forecast targeting’. It also examines implications for research and policy going forward. There is a great need in this revival for more robustness studies and for international monetary policy evaluation.
John B. Taylor is the Mary and Robert Raymond Professor of Economics at Stanford University and the George P. Shultz Senior Fellow at the Hoover Institution. He is widely recognized for path-breaking research in macroeconomics, monetary economics, and international economics. He served as a senior economist on the President’s Council of Economic Advisers from 1976-77, as a Member of the Council from 1989-91, and as Under Secretary of Treasury for International Affairs from 2001-05.
Professor Taylor is currently President of the Mont Pelerin Society and recently served on the Eminent Persons Group on Global Financial Governance created by the G20. He received the Alexander Hamilton Award and the Treasury Distinguished Service Award at the US Treasury, and the Medal of the Republic of Uruguay for his work in resolving the 2002 financial crisis. His book Global Financial Warriors chronicles his policy innovations at the US Treasury. He received the Truman Medal for Economic Policy for extraordinary policy contributions, the Bradley Prize for economic research and policy achievements, the Hayek Prize for his book, First Principles, and Adam Smith Awards from the National Association for Business Economics and the Association of Private Enterprise Education. His most recent book is Reform of the International Monetary System.
Taylor received Stanford’s Hoagland Prize and Rhodes Prize for excellence in undergraduate teaching and the Economics Department Distinguished Faculty Teaching Award. Taylor received a BA in economics summa cum laude from Princeton and a PhD in economics from Stanford.