More on “Too Low For Too Long”

Much continues to be written this week about whether interest rates were too low for too long in the period 2003-2005 . David Papell posted a useful guest analysis on Econbrowser this morning showing that the target federal funds interest rate was too low in 2003-2005 when you use the overall GDP price measure of inflation in the Taylor rule; he also shows that the target interest rate would not have increased in 2008 as Ben Bernanke argued in his Atlanta speech.

In Bernanke Challenged on Rates’ Role in Bust, Jon Hilsenrath reports results in the Wall Street Journal that show that 70 percent of economists of an informal survey agreed that “Excessively easy monetary policy by the Federal Reserve in the first part of the decade helped cause a bubble in house prices” (78 percent of business economists).

I was interviewed today on CNBC’s Kudlow Report about my Wall Street Journal reply to Ben Bernanke. Among other things Larry Kudlow asked about Thomas Hoenig’s calculation that real interest rates were below zero in the past decade for about as much time as they were in the turbulent 1970s. This bar chart from Thomas Hoenig’s January 7 speech gives the details which are very striking.

Also some asked about the specific reference to the finding of Athanasios Orphanides and Volker Wieland that interest rate were too low for too long if you use private sector forecasts of inflation rather than the Fed’s forecasts in the Taylor rule. Here is the link to the July/August 2008 Review of the St. Louis Fed, the same issue where the Jarocinski-Smets piece mentioned in my Wall Street Journal article appeared.

About John B. Taylor 117 Articles

Affiliation: Stanford University

John B. Taylor is the Mary and Robert Raymond Professor of Economics at Stanford University and the Bowen H. and Janice Arthur McCoy Senior Fellow at the Hoover Institution. He formerly served as the director of the Stanford Institute for Economic Policy Research, where he is now a senior fellow, and he was founding director of Stanford's Introductory Economics Center.

Taylor’s academic fields of expertise are macroeconomics, monetary economics, and international economics. He is known for his research on the foundations of modern monetary theory and policy, which has been applied by central banks and financial market analysts around the world. He has an active interest in public policy. Taylor is currently a member of the California Governor's Council of Economic Advisors, where he also previously served from 1996 to 1998. In the past, he served as senior economist on the President's Council of Economic Advisers from 1976 to 1977, as a member of the President's Council of Economic Advisers from 1989 to 1991. He was also a member of the Congressional Budget Office's Panel of Economic Advisers from 1995 to 2001.

For four years from 2001 to 2005, Taylor served as Under Secretary of Treasury for International Affairs where he was responsible for U.S. policies in international finance, which includes currency markets, trade in financial services, foreign investment, international debt and development, and oversight of the International Monetary Fund and the World Bank. He was also responsible for coordinating financial policy with the G-7 countries, was chair of the working party on international macroeconomics at the OECD, and was a member of the Board of the Overseas Private Investment Corporation. His book Global Financial Warriors: The Untold Story of International Finance in the Post-9/11 World chronicles his years as head of the international division at Treasury.

Taylor was awarded the Alexander Hamilton Award for his overall leadership in international finance at the U.S. Treasury. He was also awarded the Treasury Distinguished Service Award for designing and implementing the currency reforms in Iraq, and the Medal of the Republic of Uruguay for his work in resolving the 2002 financial crisis. In 2005, he was awarded the George P. Shultz Distinguished Public Service Award. Taylor has also won many teaching awards; he was awarded the Hoagland Prize for excellence in undergraduate teaching and the Rhodes Prize for his high teaching ratings in Stanford's introductory economics course. He also received a Guggenheim Fellowship for his research, and he is a fellow of the American Academy of Arts and Sciences and the Econometric Society; he formerly served as vice president of the American Economic Association.

Before joining the Stanford faculty in 1984, Taylor held positions as professor of economics at Princeton University and Columbia University. Taylor received a B.A. in economics summa cum laude from Princeton University in 1968 and a Ph.D. in economics from Stanford University in 1973.

Visit: John Taylor's Page, Blog

Be the first to comment

Leave a Reply

Your email address will not be published.