From Friedman to Taylor: The Revival of Monetary Policy Rules in the 1990s

Edward Nelson

No 2025-023, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper examines the revival in the analysis of monetary policy rules that took place during the 1990s. The focus is on the role that John Taylor played in this revival. It is argued that Taylor’s role—most notably through his advancing the Taylor rule, developed in 1992−1993 and increasingly permeating discussions in research and policy circles over the subsequent several years—is usefully viewed as one of building bridges. In particular, Taylor created links between a monetary policy rules tradition closely associated with Milton Friedman and an interest-rate setting tradition long associated with central banks. The rules tradition had looked unfavorably on interest-rate setting, while the central bank tradition was unfavorably disposed toward policy rules. The Taylor rule helped create a compromise between the traditions, while also advancing an interest-rate reaction function that helped create a revival during the 1990s of economic research on monetary policy rules.

Keywords: Taylor rule; Interest rate rules (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Pages: 27 p.
Date: 2025-03-28
New Economics Papers: this item is included in nep-cba, nep-his, nep-hpe and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2025-23

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