Robert Leeson

The Taylor rule and the practice of central banking

The Taylor rule has revolutionized the way many policymakers at central banks think about monetary policy. It has framed policy actions as a systematic response to incoming information about economic conditions, as opposed to a period-by-period optimization problem. It has emphasized the importance of adjusting policy rates more than one-for-one in response to an increase in inflation. And, various versions of the Taylor rule have been incorporated into macroeconomic models that are used at central banks to understand and forecast the economy. ; This paper examines how the Taylor rule is used as an input in monetary policy deliberations and decision-making at central banks. The paper characterizes the policy environment at the time of the development of the Taylor rule and describes how and why the Taylor rule became integrated into policy discussions and, in some cases, the policy framework itself. Speeches by policymakers and transcripts and minutes of policy meetings are examined to explore the practical uses of the Taylor rule by central bankers. While many issues remain unresolved and views still differ about how the Taylor rule can best be applied in practice, the paper shows that the rule has advanced the practice of central banking.

The Taylor Rule and the Transformation of Monetary Policy

This paper examines the intellectual history of the Taylor Rule and its considerable influence on macroeconomic research and monetary policy. The paper traces the historical antecedents to the Taylor rule, emphasizing the contributions of three prominent advocates of rules--Henry Simons, A.W. H. Phillips, and Milton Friedman. The paper then examines the evolution of John Taylors thinking as an academic and policy advisor leading up to his formulation of the Taylor rule. Finally, the paper documents the influence of the Taylor rule on macroeconomic research and the Federal Reserves conduct of monetary policy.

‘The Ghosts I Called I Can’t Get Rid of Now’: the Keynes-Tinbergen- Friedman-Phillips Critique of Keynesian Macroeconometrics

This chapter offers a fresh perspective on the much publicized dispute between those followers of Keynes who presented econometric evidence in favour of a Phillips curve trade-off, and those monetarists who presented counter econometric evidence. Contrary to common perceptions, the collapse of the Keynesian Phillips curve was a vindication of a common critique of macroeconometric practices, which was jointly authored by John Maynard Keynes, Jan Tinbergen, Milton Friedman and A. W. H. ‘Bill’ Phillips. This analysis is informed by the usual sources, plus two sources which had been thought to be no longer in existence (Phillips’s private papers and the London School of Economics (LSE) Methodology, Measurement and Testing (M2T) Staff Seminar records), plus two essays by Keynes (1938a, 1938b) which have been overlooked in this context.

Patinkin, Johnson, and the Shadow of Friedman

George Stigler (1987, 311) concluded that his friend and Chicago colleague, Milton Friedman, had “established (to my complete satisfaction) his claim as the best debater in a profession that likes to debate.” Since Friedman (like Stigler) set out to change the direction of economic policy and research he could not have been surprised by the controversy his efforts elicited. Indeed, he courted controversy to further his counterrevolution. He informed Don Patinkin (8 November 1948) that he had been disappointed with the “very little violent criticism” of his “Monetary and Fiscal Framework for Economic Stability” ([1948] 1953): “I, too, have been expecting that someone would take a crack

The Early Patinkin—Friedman Correspondence

Don Patinkin (1922-95) was a co-author of the Keynesian neoclassical synthesis, and became engaged in several important controversies. One of them involved Milton Friedmans (1956) assertion about a supposed Chicago quantity theory “oral tradition.†From 1968 until his death, Patinkin hardly seemed to miss an opportunity of denigrating what he regarded as Friedmans “invention.†This controversy was taken to the 1970 American Economic Association (AEA) meeting by Harry Johnson (1971), and divided at least two economics departments, Chicago and the University of Western Ontario, where Patinkin and Johnson were frequent visitors, and where two influential monetarists, David Laidler and Michael Parkin, had migrated from Britain (Parkin, 1986; Patinkin, 1986).

Influence (or The Lack of It) in the Economics Profession: The Case of Lucien Albert Hahn

D. J. Boudreaux and G. A. Selgin’s fascinating discussion of L. Albert Hahn – “a precursor of Keynesianism and the monetarist counter-revolution” - deserves the attention of economists. The purpose of this essay is to add some further information about Hahn’s influence, to highlight a similarity between Hahn and A.W.H. Phillips, to question whether Hahn can accurately be described as a “proto-monetarist,” and to provoke some discussion about the sociology of knowledge in the economics profession.

The Rise of the Natural-Rate of Unemployment Model

With respect to political mythology, the Northern spring of 1968 is chiefly remembered (like its forerunner of 1848) as a ‘springtime’ of youthful and hirsute left-revolutionary fervour. This revolutionary wave could plausibly include a US President among its victims, broken by the weight of office.1 In contrast to all this tragedy and melodrama, with respect to influence over economic policy and all that flows from that, the most revolutionary call to arms of that time was Milton Friedman’s American Economic Association (AEA) Presidential Address. Neither youthful nor hirsute, he was an advocate of floating exchange rates, monetary targeting, low if not zero inflation, the abandonment of fine tuning, lower taxes and less regulated markets.

The Chicago Counter-Revolution and the Sociology of Economic Knowledge

George Stigler and Milton Friedman sought, and achieved, great influence both internally (within the economics profession) and externally (over a wider constituency).2 The intellectual and policy transformations that occurred from the late 1960s were the combined product of internal forces (apparently impressive historical relationships between money and prices etc.) and external anxiety about perceived policy failures (high inflation and rising unemployment etc.). There is, of course, a link between the two (Keynes, 1936: 383±4). Stigler’s Theory of Price was highly influential both within and outside the economics profession. When Stigler (1969a: 146) testified before the House of Representatives Select Committee on Small Business that his ‘own goal is a competitive economy’ (not a goal shared by Edward Chamberlin3), he was informed by the General Counsel that ‘this subcommittee has a long record of being greatly infatuated with some of your ideas’; understanding his textbook had cost ‘many hours of sleep’ (Potvin, 1969: 150, 152).4

A. W. H. Phillips: His machine and his curve

This paper re‐examines Phillips’ work on stabilisation policy by placing his empirical curve in the context of his macroeconomic Machine (now on display at the Science Museum in London and elsewhere) and his sophisticated Phillips curve theory, suggesting that the inflation‐unemployment trade‐off is a misinterpretation of Phillips’ curve.

The Great Inflation of the 1970s: Evidence from the Archives

In 1985 the Duke University Manuscript Department, in conjunction with the Department of Economics, began an Economists’ Papers Project aimed at preserving the correspondence, writings, and related papers of a number of distinguished economists. These papers contain a treasure trove of useful information, particularly on the development of post-war economic theory.