The Federal Reserve Board published a paper by Edward Nelson, “From Friedman to Taylor: The Revival of Monetary Policy Rules in the 1990s,” examining the resurgence of monetary policy rules analysis in the 1990s and the role John Taylor played in that revival. The paper argues that the Taylor rule provided a practical bridge between a policy-rules tradition associated with Milton Friedman and a central-banking tradition centered on interest-rate setting. The analysis characterizes the pre-1990s divide as one in which the rules tradition was skeptical of interest-rate setting while central banks were skeptical of policy rules. It argues that Taylor’s development and promotion of the Taylor rule in 1992–1993 helped create a compromise by framing policy rules as an interest-rate reaction function, which then increasingly permeated research and policy discussions and contributed to the renewed academic focus on monetary policy rules.
Federal Reserve Board 2025-03-28
Federal Reserve Board publishes study on John Taylor’s role in reviving monetary policy rules in the 1990s
The Federal Reserve Board released a paper by Edward Nelson titled “From Friedman to Taylor: The Revival of Monetary Policy Rules in the 1990s,” highlighting John Taylor's role in reviving monetary policy rules analysis. The paper discusses how the Taylor rule bridged the gap between Milton Friedman's policy-rules tradition and central banking's interest-rate setting, fostering renewed academic focus on monetary policy rules.