John Brian Taylor (born December 8, 1946) is the Mary and Robert Raymond Professor of Economics at
Stanford University
Stanford University, officially Leland Stanford Junior University, is a private research university in Stanford, California. The campus occupies , among the largest in the United States, and enrolls over 17,000 students. Stanford is consider ...
, and the
George P. Shultz
George Pratt Shultz (; December 13, 1920February 6, 2021) was an American economist, businessman, diplomat and statesman. He served in various positions under two different Republican presidents and is one of the only two persons to have held fou ...
Senior Fellow in Economics at Stanford University's
Hoover Institution
The Hoover Institution (officially The Hoover Institution on War, Revolution, and Peace; abbreviated as Hoover) is an American public policy think tank and research institution that promotes personal and economic liberty, free enterprise, and ...
.
He taught at
Columbia University
Columbia University (also known as Columbia, and officially as Columbia University in the City of New York) is a private research university in New York City. Established in 1754 as King's College on the grounds of Trinity Church in Manhatt ...
from 1973 to 1980 and the
Woodrow Wilson School
The Princeton School of Public and International Affairs (formerly the Woodrow Wilson School of Public and International Affairs) is a professional public policy school at Princeton University. The school provides an array of comprehensive course ...
and Economics Department of Princeton University from 1980 to 1984 before returning to Stanford. He has received several teaching prizes and teaches Stanford's introductory economics course as well as PhD courses in monetary economics.
In research published in 1979 and 1980 he developed a model of price and wage setting—called the staggered contract model—which served as an underpinning of a new class of empirical models with rational expectations and sticky prices—sometimes called new Keynesian models. In a 1993 paper he proposed the
Taylor rule
The Taylor rule is a monetary policy targeting rule. The rule was proposed in 1992 by American economist John B. Taylor for central banks to use to stabilize economic activity by appropriately setting short-term interest rates.
The rule consider ...
,
[Pdf.]
/ref> intended as a recommendation about how nominal interest rate
An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, th ...
s should be determined, which then became a rough summary of how central bank
A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union,
and oversees their commercial banking system. In contrast to a commercial bank, a central ba ...
s actually do set them. He has been active in public policy, serving as the Under Secretary of the Treasury
The United States Deputy Secretary of the Treasury, in the United States government, advises and assists the Secretary of the Treasury in the supervision and direction of the Department of the Treasury and its activities, and succeeds the Secret ...
for International Affairs during the first term of the George W. Bush Administration
George W. Bush's tenure as the 43rd president of the United States began with his first inauguration on January 20, 2001, and ended on January 20, 2009. Bush, a Republican from Texas, took office following a narrow victory over Democratic ...
. His book ''Global Financial Warriors'' chronicles this period. He was a member of the President's Council of Economic Advisors
The Council of Economic Advisers (CEA) is a United States agency within the Executive Office of the President established in 1946, which advises the President of the United States on economic policy. The CEA provides much of the empirical resea ...
during the George H. W. Bush
George Herbert Walker BushSince around 2000, he has been usually called George H. W. Bush, Bush Senior, Bush 41 or Bush the Elder to distinguish him from his eldest son, George W. Bush, who served as the 43rd president from 2001 to 2009; pr ...
Administration and Senior Economist at the Council of Economic Advisors during the Ford and Carter Administrations.
In 2012 he was included in the 50 Most Influential list of Bloomberg Markets
''Bloomberg Markets'' is a magazine published six times a year by Bloomberg L.P. as part of Bloomberg News. Aimed at global financial professionals, ''Bloomberg Markets'' publishes articles on the people and issues related to global financial ma ...
Magazine. Thomson Reuters lists Taylor among the " citation laureates" who are likely future winners of the Nobel Prize in Economics
The Nobel Memorial Prize in Economic Sciences, officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel ( sv, Sveriges riksbanks pris i ekonomisk vetenskap till Alfred Nobels minne), is an economics award administered ...
. He was president of the Mont Pelerin Society
The Mont Pelerin Society (MPS) is an international organization composed of economists, philosophers, historians, intellectuals and business leaders.Michael Novak, 'The Moral Imperative of a Free Economy', in '' The 4% Solution: Unleashing the E ...
(a neoliberal economic think tank) from 2018 to 2020.
Early life and education
Born in Yonkers, New York
Yonkers () is a city in Westchester County, New York, United States. Developed along the Hudson River, it is the third most populous city in the state of New York, after New York City and Buffalo. The population of Yonkers was 211,569 as enu ...
, Taylor graduated from Shady Side Academy }
Shady Side Academy is an independent preparatory school located in the Borough of Fox Chapel (suburban Pittsburgh), and in the Point Breeze neighborhood of Pittsburgh, Pennsylvania. Founded in 1883 as an all-male night school in the Shadyside ...
and earned his AB in economics from Princeton University
Princeton University is a private university, private research university in Princeton, New Jersey. Founded in 1746 in Elizabeth, New Jersey, Elizabeth as the College of New Jersey, Princeton is the List of Colonial Colleges, fourth-oldest ins ...
in 1968 after completing a senior thesis titled "Fiscal and Monetary Stabilization Policies in a Model of Cyclical Growth". He then earned his PhD in economics from Stanford University in 1973.
Academic contributions
Taylor's research—including the staggered contract model, the Taylor rule
The Taylor rule is a monetary policy targeting rule. The rule was proposed in 1992 by American economist John B. Taylor for central banks to use to stabilize economic activity by appropriately setting short-term interest rates.
The rule consider ...
, and the construction of a policy tradeoff (Taylor) curve employing empirical rational expectations models—has had a major impact on economic theory and policy. Former Federal Reserve Chairman Ben Bernanke
Ben Shalom Bernanke ( ; born December 13, 1953) is an American economist who served as the 14th chairman of the Federal Reserve from 2006 to 2014. After leaving the Fed, he was appointed a distinguished fellow at the Brookings Institution. Durin ...
has said that Taylor's “influence on monetary theory and policy has been profound,” and Federal Reserve Chair Janet Yellen
Janet Louise Yellen (born August 13, 1946) is an American economist serving as the 78th United States secretary of the treasury since January 26, 2021. She previously served as the 15th chair of the Federal Reserve from 2014 to 2018. Yellen is t ...
has noted that Taylor's work “has affected the way policymakers and economists analyze the economy and approach monetary policy."
Taylor contributed to the development of mathematical methods for solving macroeconomic model
A macroeconomic model is an analytical tool designed to describe the operation of the problems of economy of a country or a region. These models are usually designed to examine the comparative statics and dynamics of aggregate quantities such as ...
s under the assumption of rational expectations
In economics, "rational expectations" are model-consistent expectations, in that agents inside the model
A model is an informative representation of an object, person or system. The term originally denoted the plans of a building in late 16 ...
, including in a 1975 ''Journal of Political Economy'' paper, in which he showed how gradual learning could be incorporated in models with rational expectations; a 1979 ''Econometrica'' paper in which he presented one of the first econometric models with overlapping price setting and rational expectations, which he later expanded into a large multicountry model in a 1993 book ''Macroeconomic Policy in a World Economy'', and a 1983 ''Econometrica'' paper, in which he developed with Ray Fair the first algorithm to solve large-scale dynamic stochastic general equilibrium models which became part of popular solution programs such as Dynare and EViews
EViews is a statistical package for Microsoft Windows, Windows, used mainly for time-series oriented econometrics, econometric analysis. It is developed by Quantitative Micro Software (QMS), now a part of IHS Inc., IHS. Version 1.0 was released ...
.
In 1977, Taylor and Edmund Phelps
Edmund Strother Phelps (born July 26, 1933) is an American economist and the recipient of the 2006 Nobel Memorial Prize in Economic Sciences.
Early in his career, he became known for his research at Yale's Cowles Foundation in the first half of ...
, simultaneously with Stanley Fischer
Stanley Fischer ( he, סטנלי פישר; born October 15, 1943) is an Israeli American economist who served as the 20th Vice Chair of the Federal Reserve from 2014 to 2017. Fisher previously served as the 8th governor of the Bank of Israel fro ...
, showed that monetary policy is useful for stabilizing the economy if prices or wages are sticky
Sticky may refer to:
People
*Sticky (musician), alias of UK garage producer Richard Forbes
* Sticky Fingaz or Sticky (born 1973), nickname of the US rapper and actor Kirk Jones
Adhesion
*Adhesion
Adhesion is the tendency of dissimilar ...
, even when all workers and firms have rational expectations. This demonstrated that some of the earlier insights of Keynesian economics
Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes) are the various macroeconomic theories and models of how aggregate demand (total spending in the economy) strongly influences economic output an ...
remained true under rational expectations. This was important because Thomas Sargent
Thomas John Sargent (born July 19, 1943) is an American economist and the W.R. Berkley Professor of Economics and Business at New York University. He specializes in the fields of macroeconomics, monetary economics, and time series econometrics ...
and Neil Wallace
Neil Wallace (born 1939) is an American economist and professor of economics at Penn State University. He is considered one of the main proponents of new classical macroeconomics in the field of economics.
Education
Wallace earned his BA in e ...
had argued that rational expectations would make macroeconomic policy useless for stabilization; the results of Taylor, Phelps, and Fischer showed that Sargent and Wallace's crucial assumption was not rational expectations, but perfectly flexible prices. These research projects together could considerably deepen our understanding of the limits of the policy-ineffectiveness proposition The policy-ineffectiveness proposition (PIP) is a new classical theory proposed in 1975 by Thomas J. Sargent and Neil Wallace based upon the theory of rational expectations, which posits that monetary policy cannot systematically manage the level ...
.
Taylor then developed the staggered contract model of overlapping wage and price setting, which became one of the building blocks of the New Keynesian macroeconomics
New Keynesian economics is a school of macroeconomics that strives to provide microeconomic foundations for Keynesian economics. It developed partly as a response to criticisms of Keynesian macroeconomics by adherents of new classical macroe ...
that rebuilt much of the traditional macromodel on rational expectations microfoundations
Microfoundations are an effort to understand macroeconomic phenomena in terms of economic agents' behaviors and their interactions.Maarten Janssen (2008),Microfoundations, in ''The New Palgrave Dictionary of Economics'', 2nd ed. Research in microf ...
.
Taylor's research on monetary policy
Monetary policy is the policy adopted by the monetary authority of a nation to control either the interest rate payable for very short-term borrowing (borrowing by banks from each other to meet their short-term needs) or the money supply, often a ...
rules traces back to his undergraduate studies at Princeton.
He went on in the 1970s and 1980s to explore what types of monetary policy rules would most effectively reduce the social costs of inflation and business cycle fluctuations: should central banks try to control the money supply, the price level, or the interest rate; and should these instruments react to changes in output, unemployment, asset prices, or inflation rates? He showed that there was a tradeoff—later called the Taylor curve—between the volatility of inflation and that of output. Taylor's 1993 paper in the ''Carnegie-Rochester Conference Series on Public Policy'' proposed that a simple and effective central bank policy would manipulate short-term interest rates, raising rates to cool the economy whenever inflation or output growth becomes excessive, and lowering rates when either one falls too low. Taylor's interest rate equation has come to be known as the Taylor rule
The Taylor rule is a monetary policy targeting rule. The rule was proposed in 1992 by American economist John B. Taylor for central banks to use to stabilize economic activity by appropriately setting short-term interest rates.
The rule consider ...
, and it is now widely accepted as an effective formula for monetary decision making.
A key stipulation of the Taylor rule, sometimes called the Taylor principle, is that the nominal interest rate should increase by more than one percentage point for each one-percent rise in inflation. Some empirical estimates indicate that many central banks today act approximately as the Taylor rule prescribes, but violated the Taylor principle during the inflationary spiral of the 1970s.
Recent research
Taylor's recent research has been on the financial crisis that began in 2007 and the world economic recession. He finds that the crisis was primarily caused by flawed macroeconomic policies from the U.S. government and other governments. Particularly, he focuses on the Federal Reserve
The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a ...
which, under Alan Greenspan
Alan Greenspan (born March 6, 1926) is an American economist who served as the 13th chairman of the Federal Reserve from 1987 to 2006. He works as a private adviser and provides consulting for firms through his company, Greenspan Associates LLC. ...
, a personal friend of Taylor, created "monetary excesses" in which interest rates
An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, th ...
were kept too low for too long, which then directly led to the housing boom in his opinion. He also believes that Freddie Mac
The Federal Home Loan Mortgage Corporation (FHLMC), commonly known as Freddie Mac, is a publicly traded, government-sponsored enterprise (GSE), headquartered in Tysons Corner, Virginia.[Fannie Mae
The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, is a United States government-sponsored enterprise (GSE) and, since 1968, a publicly traded company. Founded in 1938 during the Great Depression as part of the N ...]
spurred on the boom and that the crisis was misdiagnosed as a liquidity rather than a credit risk problem. He wrote that, "government actions and interventions, not any inherent failure or instability of the private economy, caused, prolonged, and worsen the crisis."
Taylor's research has also examined the impact of fiscal policy in the recent recession. In November 2008, writing for ''The Wall Street Journal
''The Wall Street Journal'' is an American business-focused, international daily newspaper based in New York City, with international editions also available in Chinese and Japanese. The ''Journal'', along with its Asian editions, is published ...
'' opinion section, he recommended four measures to fight the economic downturn: ''(a)'' permanently keeping all income tax rates the same, ''(b)'' permanently creating a worker's tax credit equal to 6.2 percent of wages up to $8,000, ''(c)'' incorporating "automatic stabilizers In macroeconomics, automatic stabilizers are features of the structure of modern government budgets, particularly income taxes and welfare spending, that act to damp out fluctuations in real GDP.
The size of the government budget deficit tends to ...
" as part of overall fiscal plans, and ''(d)'' enacting a short-term stimulus
A stimulus is something that causes a physiological response. It may refer to:
*Stimulation
**Stimulus (physiology), something external that influences an activity
**Stimulus (psychology), a concept in behaviorism and perception
*Stimulus (economi ...
plan that also meets long-term objectives against waste
Waste (or wastes) are unwanted or unusable materials. Waste is any substance discarded after primary use, or is worthless, defective and of no use. A by-product, by contrast is a joint product of relatively minor economic value. A waste prod ...
and inefficiency
Efficiency is the often measurable ability to avoid wasting materials, energy, efforts, money, and time in doing something or in producing a desired result. In a more general sense, it is the ability to do things well, successfully, and without ...
. He stated that merely temporary tax cuts
A tax cut represents a decrease in the amount of money taken from taxpayers to go towards government revenue. Tax cuts decrease the revenue of the government and increase the disposable income of taxpayers. Tax cuts usually refer to reductions in ...
would not serve as a good policy tool. His research with John Cogan, Tobias Cwik, and Volcker Wieland showed that the multiplier is much smaller in new Keynesian than in old Keynesian models, a result that was confirmed by researchers at central banks. He evaluated the 2008 and 2009 stimulus packages and argued that they were not effective in stimulating the economy.
In a June 2011 interview on Bloomberg Television
Bloomberg Television (on-air as Bloomberg) is an American-based pay television network focusing on business and capital market programming, owned by Bloomberg L.P. It is distributed globally, reaching over 310 million homes worldwide. It is head ...
, Taylor stressed the importance of long term fiscal reform that sets the U.S. federal budget on a path towards being balanced. He cautioned that the Fed should move away from quantitative easing
Quantitative easing (QE) is a monetary policy action whereby a central bank purchases predetermined amounts of government bonds or other financial assets in order to stimulate economic activity. Quantitative easing is a novel form of monetary pol ...
measures and keep to a more static, stable monetary policy. He also criticized fellow economist Paul Krugman
Paul Robin Krugman ( ; born February 28, 1953) is an American economist, who is Distinguished Professor of Economics at the Graduate Center of the City University of New York, and a columnist for ''The New York Times''. In 2008, Krugman was th ...
's advocacy of additional stimulus programs from Congress, which Taylor said will not help in the long run. In his 2012 book ''First Principles: Five Keys to Restoring America’s Prosperity'', he endeavors to explain why these reforms are part of a broader set of principles of economic freedom.
Selected publications
*
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*
::Reprinted in
*
*
Pdf.
* Taylor, John B. (1986), 'New econometric approaches to stabilization policy in stochastic models of macroeconomic fluctuations'. Ch. 34 of ''Handbook of Econometrics'', vol. 3, Z. Griliches and M.D. Intriligator, eds. Elsevier Science Publishers.
*
Pdf.
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*
See also
* Members of the Hoover Institution
* Members of Stanford University's Economics Department
Further reading
*
PDF.
References
External links
Taylor's Official Web Site
Taylor's blog
Stanford Economics Faculty Profile
* ttp://www.dallasfed.org/research/events/2007/07taylor.cfm Fed Conference on John Taylor’s Contributions to Monetary Theory and Policy*
*
*
{{DEFAULTSORT:Taylor, John B.
1946 births
Economists from New York (state)
Fellows of the Econometric Society
George W. Bush administration personnel
Hoover Institution people
Living people
Monetary economists
New Keynesian economists
People from Yonkers, New York
Princeton University alumni
Shady Side Academy alumni
Stanford University alumni
Stanford University Department of Economics faculty
Columbia University faculty
United States Department of the Treasury officials
Mackinac Center for Public Policy
21st-century American economists
United States Council of Economic Advisers
Member of the Mont Pelerin Society
Fellows of the American Physical Society