John B. Taylor

Stanford University, Palo Alto, California, United States

Are you John B. Taylor?

Claim your profile

Publications (104)100.43 Total impact

  • John B. Taylor
    [Show abstract] [Hide abstract]
    ABSTRACT: Why has the American economy performed so poorly in the past decade, especially in comparison with the two prior decades? This paper makes the theoretical and empirical case that a series of economic policy decisions provides the most satisfactory explanation and that policy reform will restore good economic performance. The paper also considers alternative explanations including the idea of a new secular stagnation unrelated to policy and the view that the deep financial crisis inevitably delayed recovery from the recession.
    Journal of Policy Modeling 01/2014; · 0.64 Impact Factor
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: In the aftermath of the global financial crisis and great recession, many countries face substantial deficits and growing debts. In the United States, federal government outlays as a ratio to GDP rose substantially from about 19.5 percent before the crisis to over 24 percent after the crisis. In this paper we consider a fiscal consolidation strategy that brings the budget to balance by gradually reducing this spending ratio over time to the level that prevailed prior to the crisis. A crucial issue is the impact of such a consolidation strategy on the economy. We use structural macroeconomic models to estimate this impact. We consider two types of dynamic stochastic general equilibrium models: a neoclassical growth model and more complicated models with price and wage rigidities and adjustment costs. We separate out the impact of reductions in government purchases and transfers, and we allow for a reduction in both distortionary taxes and government debt relative to the baseline of no consolidation. According to the initial model simulations GDP rises in the short run upon announcement and implementation of this fiscal consolidation strategy and remains higher than the baseline in the long run.
    Journal of Economic Dynamics and Control 02/2013; 37(2):404-421. · 0.86 Impact Factor
  • John B. Taylor
    [Show abstract] [Hide abstract]
    ABSTRACT: Research in the early 1980s found that the gains from international coordination of monetary policy were quantitatively small compared to simply getting domestic policy right. That prediction turned out to be a pretty good description of monetary policy in the 1980s, 1990s, and until recently. Because this balanced international picture has largely disappeared, the 1980s view about monetary policy coordination needs to be reexamined. The source of the problem is not that the models or the theory are wrong. Rather there was a deviation from the rule-like monetary policies that worked well in the 1980s and 1990s, and this deviation helped break down the international monetary balance. There were similar deviations at many central banks, an apparent spillover culminating in a global great deviation. The purpose of this paper is to examine the possible causes and consequences of these spillovers, and to show that uncoordinated responses of central banks to the deviations can create an amplification mechanism which might be overcome by some form of policy coordination.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
    Journal of Policy Modeling. 01/2013; 35(3).
  • Source
    John B. Taylor
    [Show abstract] [Hide abstract]
    ABSTRACT: No abstract available.
    NBER Book Chapters. 02/2012;
  • Source
    John B. Taylor
    [Show abstract] [Hide abstract]
    ABSTRACT: This lecture examines monetary policy during the past three decades. It documents two contrasting eras: first a Rules-Based Era from 1985 to 2003 and second an Ad Hoc Era from 2003 to the present. During the Rules-Based Era, monetary policy, in broad terms, followed a predictable systemic approach, and economic performance was generally good. During the Ad Hoc Era monetary policy is best described as a “discretion of authorities” approach, and economic performance was decidedly poor. By considering alternative explanations of this policy-performance correlation and examining corroborating evidence, the paper concludes that rules based policies have clear advantages over discretion.
    Journal of money credit and banking 01/2012; 44(6). · 1.09 Impact Factor
  • John B. Taylor
    [Show abstract] [Hide abstract]
    ABSTRACT: No abstract available.
    NBER Book Chapters. 11/2011;
  • Source
    John B. Taylor
    [Show abstract] [Hide abstract]
    ABSTRACT: I discuss a proposal to legislate a rule for monetary policy. The proposal modernizes laws first passed in the late 1970s, but largely discarded in 2000. It would thereby restore reporting and accountability requirements for the instruments of monetary policy. It would limit but not eliminate discretion. The proposal provides a degree of control by the political authorities without interfering in the day-to-day operations of monetary policy.
    10/2011;
  • Source
    John B. Taylor
    [Show abstract] [Hide abstract]
    ABSTRACT: No abstract available.
    NBER Book Chapters. 06/2011;
  • Source
    John B. Taylor
    [Show abstract] [Hide abstract]
    ABSTRACT: This is a review of Allan Meltzer's "A History of the Federal Reserve, Volume 2." By carefully reviewing thousands of transcripts and records, Meltzer's history lets policy makers explain their decisions in their own words, and creatively weaves historical events into a single exceptionally clear story as he did in Volume 1. In this review I first examine the book's main theme--that discretionary monetary policy failed in the Great Depression (1929-1933), in the Great Inflation (1965-1980), and in the recent Great Recession (2007-2009)--and then consider its main conclusion--that monetary policy should be based on less discretion and more rule-like behavior.
    Journal of Monetary Economics. 03/2011; 58(2):183-189.
  • Source
    John B. Taylor
    [Show abstract] [Hide abstract]
    ABSTRACT: An empirical review of the three fiscal stimulus packages of the 2000s shows that they had little if any direct impact on consumption or government purchases. Households largely saved the transfers and tax rebates. The federal government only increased purchases by a small amount. State and local governments saved their stimulus grants and shifted spending away from purchases to transfers. Counterfactual simulations show that the stimulus-induced decrease in state and local government purchases was larger than the increase in federal purchases. Simulations also show that a larger stimulus package with the same design as the 2009 stimulus would not have increased government purchases or consumption by a larger amount. These results raise doubts about the efficacy of such packages adding weight to similar assessments reached more than thirty years ago. (JEL E21, E23, E32, E62, H50)
    Journal of Economic Literature 01/2011; 49(3):686-702. · 9.24 Impact Factor
  • Source
    John B. Taylor
    [Show abstract] [Hide abstract]
    ABSTRACT: This lecture starts with a review of historical trends in the balance between rules and discretion: first toward more discretionary policies in the 1960s and 1970s; second toward more rules-based policies in the 1980s and 1990s; and third back again toward discretion in recent years. In each of these swings, monetary policy and fiscal policy moved in the same direction. These swings are correlated with economic performance—unemployment, inflation, economic and financial stability, the frequency and depths of recessions, the length and strength of recoveries. The lecture then provides evidence that the correlation is causal with the moves toward more rules-based policies improving economic performance.
    Finnish Economic Papers. 01/2011; 24(2):78-86.
  • Source
    John B. Taylor, Volker Wieland
    [Show abstract] [Hide abstract]
    ABSTRACT: In this paper we investigate the comparative properties of empirically-estimated monetary models of the U.S. economy. We make use of a new database of models designed for such investigations. We focus on three representative models: the Christiano, Eichenbaum, Evans (2005) model, the Smets and Wouters (2007) model, and the Taylor (1993a) model. Although the three models differ in terms of structure, estimation method, sample period, and data vintage, we find surprisingly similar economic impacts of unanticipated changes in the federal funds rate. However, the optimal monetary policy rules are different in the different models. Simple model-specific policy rules that include the lagged interest rate, inflation and current and lagged output gaps are not robust. Some degree of robustness can be recovered by using rules without interest-rate smoothing or with GDP growth deviations from trend in place of the output gap. However, improvement vis-à-vis other models, comes at the cost of significant performance deterioration in the original model. Model averaging offers a much more effective strategy for improving the robustness of policy rules.
    Review of Economics and Statistics 10/2010; · 2.66 Impact Factor
  • Source
    Journal of Economic Dynamics and Control 10/2010; 34(10):2229-2229. · 0.86 Impact Factor
  • Source
    John F. Cogan, John B. Taylor
    [Show abstract] [Hide abstract]
    ABSTRACT: Much of the recent economic debate about the impact of stimulus packages has focused on the size of the crucial government purchases multiplier. But equally crucial is the size of the government purchases multiplicand—the change in government purchases of goods and services that the multiplier actually multiplies. Using new data from the Bureau of Economic Analysis and considering developments at both the federal and the state and local level, we find that the government purchases multiplicand through the 2nd quarter of 2010 has been only 2 percent of the $862 billion American Recovery and Reinvestment Act (ARRA) of 2009. This increase in government purchases has occurred mainly at the federal level. While states and localities received substantial grants under ARRA, state and local governments have not increased their purchases of goods and services. Instead they reduced borrowing and increased transfer payments. These findings explain why, regardless of the size of a government purchases multiplier, changes in government purchases have had no material effect on the growth of GDP since the time ARRA was enacted. The implication is not that ARRA has been too small, but rather that it failed to increase government consumption expenditures and infrastructure spending as many had predicted from such a large package. A consideration of the counterfactual event that there had not been an ARRA supports the hypothesis that state and local government borrowing would have been higher and purchases would have been about the same in the absence of ARRA.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
    10/2010;
  • Source
    Andrew T. Levin, John B. Taylor
    [Show abstract] [Hide abstract]
    ABSTRACT: This paper documents the evolution of long-run inflation expectations and models the stance of monetary policy from 1965 to 1980. A host of survey-based measures and financial market data indicate that long-run inflation expectations rose markedly from 1965 to 1969, leveled off in the mid-1970s, and then rose at an alarming pace from 1977 to 1980. While previous studies have shown that the trajectory of the federal funds rate over that period is not well-represented by a Taylor rule with a constant inflation goal, our analysis indicates that the path of policy can be characterized by a reaction function with two breaks in the intercept—in 1970 and 1976—that correspond to discrete shifts in an implicit inflation goal. This reaction function implies that a series of stop-start episodes occurred in 1968-70, 1974-76, and 1979-80. In each episode, policy fell behind the curve by allowing a pickup in inflation before tightening belatedly, and then the subsequent contraction in economic activity led to policy easing before inflation had been brought back down to its previous level. The evidence presented in this paper raises serious doubts about several prominent theories of the Great Inflation and suggests that a simple rule with an explicit inflation goal could serve as a useful benchmark for avoiding its recurrence.
    01/2010;
  • Source
    John B. Taylor, John C. Williams
    [Show abstract] [Hide abstract]
    ABSTRACT: This paper calculates indices of central bank autonomy (CBA) for 163 central banks as of end-2003, and comparable indices for a subgroup of 68 central banks as of the end of the 1980s. The results confirm strong improvements in both economic and political CBA over the past couple of decades, although more progress is needed to boost political autonomy of the central banks in emerging market and developing countries. Our analysis confirms that greater CBA has on average helped to maintain low inflation levels. The paper identifies four broad principles of CBA that have been shared by the majority of countries. Significant differences exist in the area of banking supervision where many central banks have retained a key role. Finally, we discuss the sequencing of reforms to separate the conduct of monetary and fiscal policies. IMF Staff Papers (2009) 56, 263–296. doi:10.1057/imfsp.2008.25; published online 23 September 2008
    Federal Reserve Bank of San Francisco, Working Paper Series. 01/2010;
  • John B. Taylor, John C. Williams
    [Show abstract] [Hide abstract]
    ABSTRACT: This paper focuses on simple normative rules for monetary policy that central banks can use to guide their interest rate decisions. Such rules were first derived from research on empirical monetary models with rational expectations and sticky prices built in the 1970s and 1980s. During the past two decades substantial progress has been made in establishing that such rules are robust. They perform well with a variety of newer and more rigorous models and policy evaluation methods. Simple rules are also frequently more robust than fully optimal rules. Important progress has also been made in understanding how to adjust simple rules to deal with measurement error and expectations. Moreover, historical experience has shown that simple rules can work well in the real world in that macroeconomic performance has been better when central bank decisions were described by such rules. The recent financial crisis has not changed these conclusions, but it has stimulated important research on how policy rules should deal with asset bubbles and the zero bound on interest rates. Going forward, the crisis has drawn attention to the importance of research on international monetary issues and on the implications of discretionary deviations from policy rules.
    Handbook of Monetary Economics 01/2010; 3:829-859.
  • Source
    John B. Taylor
    [Show abstract] [Hide abstract]
    ABSTRACT: This paper shows that the monetary policy paradigm that was in place before the financial crisis worked very well and that the crisis occurred only after policy makers deviated from that paradigm. The paper also evaluates monetary policy during the financial crisis by dividing the crisis into three periods: pre-panic, panic and post-panic. It shows that the extraordinary measures did not work well in the pre-panic or the post-panic periods; instead they helped bring on the panic, even though they may have some positive impact during the panic. The implication of the paper is that the crisis does not call for a new paradigm for monetary policy.
    CASE-Center for Social and Economic Research, CASE Network Studies and Analyses. 01/2010;
  • Source
    John B. Taylor
    Journal of Monetary Economics. 01/2010; 57(5):527-530.
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: Renewed interest in fiscal policy has increased the use of quantitative models to evaluate policy. Because of modelling uncertainty, it is essential that policy evaluations be robust to alternative assumptions. We find that models currently being used in practice to evaluate fiscal policy stimulus proposals are not robust. Government spending multipliers in an alternative empirically estimated and widely cited new Keynesian model are much smaller than in these old Keynesian models; the estimated stimulus is extremely small with GDP and employment effects only one-sixth as large and with private sector employment impacts likely to be even smaller. We investigate the sensitivity of our findings with regard to the response of monetary policy, the zero bound on nominal interest rates and the inclusion of an empirically relevant degree of rule-of-thumb behaviour in the new Keynesian model. In addition, we relate our findings using estimated structural macroeconomic models to the recent literature using reduced-form regression techniques.
    Journal of Economic Dynamics and Control 01/2010; 34(3):281-295. · 0.86 Impact Factor