The Taylor Rule and the Transformation of Monetary Policy (Hoover Institute Press Publication, Band 615) - Hardcover

EVAN F. KOENIG is a vice president and senior policy adviser at the Federal Reserve Bank of Dallas and adjunct professor at Southern Methodist University. He oversees macro economic research and policy analysis in the Dallas Fed’s Research Department, briefs senior Bank officials on national economic conditions, and writes articles for Bank publications and scholarly journals. In his research, Koenig seeks to predict and explain movements in prices, output, and employment, particularly as these movements are affected by monetary policy. Koenig holds bachelor’s degrees in mathematics and economics from the University of Wisconsin and a PhD in economics from Harvard University. He joined the Dallas Fed in 1988 after several years teaching at the University of Washington.

ROBERT LEESON is a Visiting Professor of Economics at Stanford University, Visiting Professor of Economics at the University of Trento, Visiting Fellow at the Hoover Institution, and Adjunct Professor of Economics at the University of Notre Dame Australia. He was previously Bradley Fellow at the University of Western Ontario and National Fellow at the Hoover Institution. For the last quarter of a century he has been investigating the dynamics of macro economic policy formation. He has published in numerous top class journals, including the Economic Journal, Economica, the Cambridge Journal of Economics, and the History of Political Economy. He is currently editing (with Charles Palm) The Collected Writings of Milton Friedman.

GEORGE A. KAHN is a vice president and economist at the Federal Reserve Bank of Kansas City. In this capacity, he serves as an adviser to the Bank’s president and board of directors on monetary policy issues and conducts basic and applied research on issues of relevance to the Federal Reserve System. Kahn received a bachelor’s degree from the University of North Carolina at Chapel Hill and a PhD in economics from Northwestern University. He serves on the Board of Directors of the National Association for Business Economics.

The legacy of a pioneer in monetary policy

Twenty years ago, John Taylor proposed a simple idea to guide monetary policy. Quickly the idea spread, not only through academia, but also to the trading floors of Wall Street and the Federal Reserve's boardroom in Washington. Now, two decades later, the Taylor rule remains a focal point for discussion of monetary policy around the world.

In The Taylor Rule and the Transformation of Monetary Policy, a veritable contributors' "who's who" from the academic and policy communities explain and provide perspectives on John Taylor's revolutionary thinking about monetary policy. They explore some of the literature that Taylor inspired and help us understand how the new ways of thinking that he pioneered have influenced actual policy here and abroad.

In the late 1970s and early 1980s, John Taylor and a few others demonstrated that real-world rigidities, such as staggered wage and price setting, create an important role for stabilization policy even in economies where households and firms are forward-looking in their decision making and intelligent in forming their expectations. Taylor pioneered new ways of thinking about policy in such economies, showing how central banks can improve economic performance by adjusting short-term lending rates in response to resource slack and inflation. As the idea spread, financial analysts soon started writing newsletters to their clients about it. Policy makers started talking about it as they debated what to do next. Central banks in other countries began to apply it. Academics began to modify and refine it. People started calling it the Taylor rule. And before the 1990s were over, economists were able to show convincingly that policy decisions were remarkably close to it during periods of good economic performance and not so close to it during periods of poor economic performance. John Taylor's approach to macroeconomics and monetary policy has grown in popularity to the point that it has become dominant inside and outside the Federal Reserve System. It has also stimulated new research in the nuts and bolts of how labor and product markets work.

In The Taylor Rule and the Transformation of Monetary Policy, a group of expert contributors from the academic and policy communities offer their views on John Taylor's revolutionary approach to monetary theory and policy. They first provide perspective, with a review of the history of policy rules in applied macroeconomic theory, and move on to show how Taylor helped bridge the gap between monetary theory and applied monetary policy when he showed that the set of activist feedback rules consistent with a well-behaved equilibrium includes certain interest-rate rules. From the Great Inflation of the 1970s through the Great Moderation of the 1980s and 1990s to the Great Deviation following the 2001 recession, the contributors analyze Taylor's influences on monetary policy around the world.

Dividing his career between academia and government service, Taylor has demonstrated that it is possible to do important economic research that takes monetary policy's role in the economy seriously. This book provides the necessary vehicle for continuing to learn from him.