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Taylor legislation? Rules versus discretion misunderstood

John B. Taylor is one of the profession’s most recognized macroeconomists, and for good reason. He has made numerous contributions to theories on wage and price formation and monetary policy. Many concepts are so central that they carry his name. “Taylor contracts” (staggered nominal wage or price contracts that are a central ingredient in many macroeconomics models), “Taylor curves” (curves that simply illustrate the feasible monetary policy trade offs), and, of course, the “Taylor Rule”, which is a specification of a nominal interest rate rule for a central bank. Originally mentioned in a 1993 paper, Taylor showed that the simple rule—that recommends that the nominal interest rate adjust to inflation … Continue reading

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