Showing posts with label Taylor. Show all posts
Showing posts with label Taylor. Show all posts

Thursday, January 08, 2009

John Taylor, of the Taylor Rule.

Here we have a special document in which to review. The Taylor Rule is a very simple principle that was put forward by John Taylor in 1993. A prolific writer, Professor Taylor is being added to the list of academics we follow. His writing is clear in terms of defining and explaining the economic situations that he is writing about.

This first paper is available from Taylor's home page. The document "The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong" clearly presents his views on what has gone wrong in the economy today. It is important to note that the work is considered a work in progress, so check for updates. Professor Taylor is also a Senior Fellow of the Hoover Institute and member of the prestigious Working Group on Global Markets.

Much of the discussion in this paper supports the validity of the Taylor Rule. The Taylor Rule is best described as a relative point at which Fed policy on interest rates should be set. It is well described in this Kansas City Fed document.  

Taylor's analysis provides sound argument that the failure of the Fed to set its interest rate policies at an appropriate level sowed the seeds of the current economic difficulties. This provides a strong challenge to the long wave research of Professor Carlota Perez. Her theories have been discussed on this blog many times before, and make a strong case for the systemic patterns of the past 300 years. 

A debate between these two academics would provide some valuable knowledge as I suspect both are correct. The only way that I can think to reconcile these two different theories is to establish that the large economic changes that are brought about by technology, the deployment period in Perez' analysis, would somehow be triggered by some form of government failure. Government failure appearing to be the only constant in the two theories. 

The clarity of Taylor's writing is shockingly clear. He is a real talent in terms of articulating complex economic theories and a joy to read.

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