Taylor on the Taylor rule

by Russ Roberts on August 26, 2009

in Monetary Policy


And here is his recent EconTalk podcast on the financial crisis.

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Anonymous August 26, 2009 at 10:28 pm

The first link doesn’t work for me, but thanks in advance for posting this. It’s a very interesting econtalk too.

Anonymous August 26, 2009 at 10:35 pm


The link should be fixed. Let me know if it doesn’t work.

Anonymous August 26, 2009 at 10:49 pm

Yes – it works now. Very interesting. Not that I can arbitrate between Meyer and Hall’s adjustment to the Taylor rule, but it seems to me that the savings overhang that we’re still seeing at zero interest rates is at least a reason to give Meyer’s change to the rule some consideration. If Taylor is right that the Taylor rule is telling Bernanke to keep rates at zero right now, why the persistence of the overhang?

So in this piece that you’re writing on the crisis – are you just focusing on decisions and regulations in the finance industry, or are you going to bring monetary policy and the “Asian savings glut” into the mix too? I think we really need a thorough treatment of those three potential sources – even if that’s oversimplified, since those are the three main culprits that are pointed to, it would be nice to have someone run through each one and make a comprehensive assessment. I’m sure it will come along at some point.

Thanks again Russ – interesting article.

piefarmer August 27, 2009 at 1:45 am

Russ, I enjoyed the podcast when it was fresh (I listen weekly) so thanks for this update.
While I appreciate anyone, especially someone of Taylor’s esteem, criticizing the Fed, I think Taylor misses the bigger point. He is correct that we don’t need to tweak the Taylor Rule. Instead, we need to abandon the idea that any group of elites can adequately set interest rate policy. Taylor rails in the minutia of interest rate targeting, ignoring that it is impossible for the Fed to accurately achieve two goals (monetary policy and economic growth) with one tool (interest rate levers).

PS – The updates to this blog are awesome. Thanks for all you and Don do here.

Anonymous August 27, 2009 at 4:01 am

How many macroeconomic parameters change meaning when they are manipulated rather than observed?

An analogy: Polls give us an idea about what people think. Does that mean that making people choose specific items in a poll will change how they think?

We can observe people getting prosperous when they trade goods and services. Does that mean that by making people trade goods and services we can make them prosperous?

Russ Roberts August 26, 2009 at 4:11 pm

Won’t have much to say about the “Asian savings glut.” Not sure what that means. I know it gets attention but it’s a weird idea. I will say a little about monetary policy in passing. But my focus is going to be different from what people are already focusing on. Should be done in a few weeks.

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