tag:blogger.com,1999:blog-4900303239154048192.post8342651079937231282..comments2024-03-06T06:34:42.881-05:00Comments on EconoSpeak: Rewriting the Taylor RuleUnknownnoreply@blogger.comBlogger3125tag:blogger.com,1999:blog-4900303239154048192.post-84750600911163145552013-07-17T10:20:33.156-04:002013-07-17T10:20:33.156-04:002 questions:
(1) has anyone estimated the current...2 questions:<br /><br />(1) has anyone estimated the current output gap with explicit recognition of hysteresis? It seems plausible that after 5+ years of "under-utilization" of production factors, that these are beginning to deteriorate [http://wnywj.wordpress.com/2013/07/13/the-damage-done-recovery-would-now-require-massive-investment-that-wont-be-soon-forthcoming/ ].<br /><br />(2) let's assume there is a large output gap... does anyone still believe there is there any real effect via the expectations channel from QE as currently implemented? It seems like Woodford's recommendations for explicit nominal targeting of GDP (real GDP + inflation) is necessary to make irrational market participants - who apparently have a weak understanding of how the economy really works - understand that either real GDP or the price level will rise, thus finally inducing investment in the real economy (i.e., hiring, capital investment, etc.)Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-67249195345592740192013-07-17T04:45:18.861-04:002013-07-17T04:45:18.861-04:00Mark - thanks. Jared had a follow up post on this...Mark - thanks. Jared had a follow up post on this little debate where he made a few of the points that you so well document. ProGrowthLiberalhttps://www.blogger.com/profile/17138489390594441753noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-64440165509761943352013-07-16T18:00:56.519-04:002013-07-16T18:00:56.519-04:00The original rule John Taylor proposed in 1993 (&q...The original rule John Taylor proposed in 1993 ("Discretion versus Policy Rules in Practice", Carnegie-Rochester Conference Series on Public Policy, Vol. 39, December 1993, pp. 195-214), namely a Taylor Rule that places equal weights on the inflation gap and the output gap. <br /><br />In 1999 Taylor discussed an alternative version of this rule that placed double the weight on the output gap than on the inflation gap, (“A Historical Analysis of Monetary Policy Rules”, Monetary Policy Rules, Chicago: University of Chicago Press, pp. 319-341). <br /><br />http://www.nber.org/chapters/c7419.pdf<br /><br />In a speech delivered in April 2012 Janet Yellen mentioned both versions of the Taylor Rule and referred to them as "Taylor 1993" and "Taylor 1999":<br /><br />http://www.federalreserve.gov/newsevents/speech/yellen20120411a.htm<br /><br />In that same speech she used an Okun coefficient of 2.3. In fact both Taylor 1999 and the 2.3 value for the Okun coefficent have cropped up repetedly in speeches by FOMC members. See this one by James Bullard for example:<br /><br />http://research.stlouisfed.org/econ/bullard/pdf/Bullard_CFAR_StLouis8Nov2012final.pdf<br /><br />It's interesting that the SF FRB estimate of the CBO's output gap mentions the one calculated from real GDP. If you use the one calculated from nominal GDP it is slightly larger at 6.1%:<br /><br />http://research.stlouisfed.org/fred2/graph/?graph_id=82210&category_id=0<br /><br />David Glasner did a very nice post on the Taylor Rule last year:<br /><br />http://uneasymoney.com/2012/09/13/taylor-rules/Mark A. Sadowskihttps://www.blogger.com/profile/08259309059705236763noreply@blogger.com