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The Taylor rule: Is it a useful guide to understanding monetary policy?
- Article from:
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Economic Quarterly - Federal Reserve Bank of Richmond
- Article date:
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April 1, 2000
- Author:
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Copyright informationCopyright Federal Reserve Bank of Richmond Spring 2000. Provided by ProQuest LLC. (Hide copyright information)
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More than anyone else in the decade of the 1990s, John Taylor spurred research into the nature of the monetary policy pursued by the Federal Reserve System. Taylor has advanced a simple and intuitive reason for why the Fed has done a better job of controlling inflation since the early 1980s: It has raised the funds rate more aggressively in response to inflation. This article suggests a different perspective. The question should be how the Fed prevents inflation from arising in the first place, not how vigorously it responds to observed inflation.
1. TAYLOR'S RESEARCH AGENDA
Indisputably, the behavior of inflation improved in the 1980s under the leadership of Paul Volcker as chairman of ...
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