John Brian Taylor (born December 8, 1946) is an American economist who is the Mary and Robert Raymond Professor of Economics at Stanford University, and the George P. Shultz Senior Fellow in Economics at Stanford University's Hoover Institution.
He taught at Columbia University from 1973 to 1980 and the Woodrow Wilson School 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, intended as a recommendation about how nominal interest rates should be determined, which then became a rough summary of how central banks actually do set them. He has been active in public policy, serving as the Under Secretary of the Treasury for International Affairs during the first term of the George W. Bush administration. His book Global Financial Warriors chronicles this period. He was a member of the President's Council of Economic Advisors during the George H. W. Bush 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 Magazine. Thomson Reuters lists Taylor among the "citation laureates" who are likely future winners of the Nobel Prize in Economics. He was president of the Mont Pelerin Society from 2018 to 2020.
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Early life and education
Born in Yonkers, New York, Taylor graduated from Shady Side Academy and earned his AB in economics from Princeton University 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, 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 has said that Taylor's “influence on monetary theory and policy has been profound,” and Federal Reserve Chair Janet Yellen 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 models under the assumption of rational expectations, 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.
In 1977, Taylor and Edmund Phelps, simultaneously with Stanley Fischer, showed that monetary policy is useful for stabilizing the economy if prices or wages are sticky, even when all workers and firms have rational expectations. This demonstrated that some of the earlier insights of Keynesian economics remained true under rational expectations. This was important because Thomas Sargent and Neil Wallace 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.
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 that rebuilt much of the traditional macromodel on rational expectations microfoundations.
Selected publications
Taylor, John B. (October 1975). "Monetary policy during a transition to rational expectations". Journal of Political Economy. 83 (5): 1009–22. CiteSeerX 10.1.1.740.3676. doi:10.1086/260374. JSTOR 1830083. S2CID 8603588. {{cite journal}}: Cite uses deprecated parameter |citeseerx= (help)
Taylor, John B.; Phelps, Edmund S. (February 1977). "Stabilizing powers of monetary policy under rational expectations". Journal of Political Economy. 85 (1): 163–90. CiteSeerX 10.1.1.741.1432. doi:10.1086/260550. JSTOR 1828334. S2CID 14729818. {{cite journal}}: Cite uses deprecated parameter |citeseerx= (help)
Taylor, John B. (May 1979). "Staggered wage setting in a macro model". The American Economic Review. 69 (2). American Economic Association: 108–113. JSTOR 1801626.
Reprinted in Taylor, John B. (1991), "Staggered wage setting in a macro model", in Mankiw, N. Gregory; Romer, David (eds.), New Keynesian economics, volume 1, Cambridge, Massachusetts: MIT Press, pp. 233–42, ISBN 9780262631334.
Taylor, John B. (September 1979). "Estimation and control of a macroeconomic model with rational expectations". Econometrica. 47 (5): 1267–86. CiteSeerX 10.1.1.741.8996. doi:10.2307/1911962. JSTOR 1911962. {{cite journal}}: Cite uses deprecated parameter |citeseerx= (help)
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.
Taylor, John B. (December 1993). "Discretion versus policy rules in practice". Carnegie-Rochester Conference Series on Public Policy. 39: 195–214. doi:10.1016/0167-2231(93)90009-L. Pdf.
Taylor, John B. (1999), "An historical analysis of monetary policy rules", in Taylor, John B. (ed.), Monetary policy rules, Chicago: University of Chicago Press, ISBN 9780226791265.