Tuesday, October 24, 2017

Is Taylor a Hawk or Not?

Two Bloomberg articles published just a week apart call John Taylor, a contender for Fed Chair, first hawkish, then dovish. The first, by Garfield Clinton Reynolds, notes:
...The dollar rose and the 10-year U.S. Treasury note fell on Monday after Bloomberg News reported Taylor, a professor at Stanford University, impressed President Donald Trump in a recent White House interview. 
Driving those trades was speculation that the 70 year-old Taylor would push rates up to higher levels than a Fed helmed by its current chair, Janet Yellen. That’s because he is the architect of the Taylor Rule, a tool widely used among policy makers as a guide for setting rates since he developed it in the early 1990s.
But the second, by Rich Miller, claims that "Taylor’s Walk on Supply Side May Leave Him More Dove Than Yellen." Miller explains,
"While Taylor believes the [Trump] administration can substantially lift non-inflationary economic growth through deregulation and tax changes, Yellen is more cautious. That suggests that the Republican Taylor would be less prone than the Democrat Yellen to raise interest rates in response to a policy-driven economic pick-up."
What actually makes someone a hawk? Simply favoring rules-based policy is not enough. A central banker could use a variation of the Taylor rule that implies very little response to inflation, or that allows very high average inflation. Beliefs about the efficacy of supply-side policies also do not determine hawk or dove status. Let's look at the Taylor rule from Taylor's 1993 paper:
r = p + .5y + .5(p – 2) + 2,
where r is the federal funds rate, y is the percent deviation of real GDP from target, and p is inflation over the previous 4 quarters. Taylor notes (p. 202) that lagged inflation is used as a proxy for expected inflation, and y=100(Y-Y*)/Y* where Y is real GDP and Y* is trend GDP (a proxy for potential GDP).

The 0.5 coefficients on the y and (p-2) terms reflect how Taylor estimated that the Fed approximately behaved, but in general a Taylor rule could have different coefficients, reflecting the central bank's preferences. The bank could also have an inflation target p* not equal to 2, and replace (p-2) with (p-p*). Just being really committed to following a Taylor rule does not tell you what steady state inflation rate or how much volatility a central banker would allow. For example, a central bank could follow a rule with p*=5 and a relatively large coefficient on y and small coefficient on (p-5), allowing both high and volatile inflation.

What do "supply side" beliefs imply? Well, Miller thinks that Taylor believes the Trump tax and deregulatory policy changes will raise potential GDP, or Y*. For a given value of Y, a higher estimate of Y* implies a lower estimate of y, which implies lower r. So yes, in the very short run, we could see lower r from a central banker who "believes" in supply side economics than from one who doesn't, all else equal.

But what if Y* does not really rise as much as a supply-sider central banker thinks it will? Then the lower r will result in higher p (and Y), to which the central bank will react by raising r. So long as the central bank follows the Taylor principle (so the sum of the coefficients on p and (p-p*) in the rule are greater than 1), equilibrium long-run inflation is p*.

The parameters of the Taylor rule reflect the central bank's preferences. The right-hand-side variables, like Y*, are measured or forecasted. That reflects a central bank's competence at measuring and forecasting, which depends on a number of factors ranging from the strength of its staff economists to the priors of the Fed Chair to the volatility and unpredictability of other economic conditions and policies. 

Neither Taylor nor Yellen seems likely to change the inflation target to something other than 2 (and even if they wanted to, they could not unilaterally make that decision.) They do likely differ in their preferences for stabilizing inflation versus stabilizing output, and in that respect I'd guess Taylor is more hawkish. 

Yellen's efforts to look at alternative measures of labor market conditions in the past are also about Y*. In some versions of the Taylor rule, you see unemployment measures instead of output measures (where the idea is that they generally comove). Willingness to consider multiple measures of employment and/or output is really just an attempt to get a better measure on how far the real economy is from "potential." It doesn't make a person inherently more or less hawkish.

As an aside, this whole discussion presumes that monetary policy itself (or more generally, aggregate demand shifts) do not change Y*. Hysteresis theories reject that premise. 

29 comments:

  1. The Taylor rule is ex-post. Use money flows, M*Vt. The distributed lag effects of money flows are mathematical constants.

    Janet Yellen should be reappointed. Her interest rate hikes to counteract the rise in inflation during 2017 have been extraordinarily prescient.

    ReplyDelete
  2. The 28-day liquor rehab programs have probably the most elevated achievement rates on the planet. Generally individuals are fruitful at beating their compulsion with just a single 28-day treatment. For the achievement of any liquor or medication treatment program, the underlying goal is to balance out, accomplishing and keep up restraint sufficiently long to make a strong recuperation establishment. It gets basic for the recouping individual to decide to take part in the continuous procedure of development and change, when forbearance is accomplished. Individuals going to these projects take an interest in training talks and treatment directing in both one-on-one and little gathering settings. Some rehab programs likewise have extra exercises, for example, yoga, prologue to otherworldly standards of recuperation and care groups.
    recovery quotes
    addiction quotes

    ReplyDelete
  3. The YesPornPlease/Blog configuration is smooth and smooth looking, with a fresh white legacy and masses of lively tones at some phase in to make things exciting. The pictures are high goal as appropriately which could be outwardly engaging, particularly in posts like "Lube: How Much and Where" that includes a photo of an uncovered young lady getting scoured down with child oil. I comprehend that doesn't sound fascinating, however trust me, just the site of her ideal little clit shimmering with kid oil is adequate to make me have to whip my rooster out and blow my heap all through her.
    yespornplease
    yespornplease.com

    ReplyDelete
  4. Grayhawk - Nate Real Estate:Grayhawk At A Glance Types Of Homes For Sale In Grayhawk: Condos Townhomes Single-family homes Villas Schools: Grayhawk Elementary El Dorado Private Elementary Mountain Trail Middle School Pinnacle High School. Grayhawk Community Amenities: Grayhawk Clubhouse Grayhawk public golf courses 3 Grayhawk Clubhouse restaurants 7 community swimming pools, 7 spas, and 6 tennis courts

    Source: Grayhawk golf homes for sale

    ReplyDelete
  5. Definitely consider that that you stated. Your favorite justification seemed to be at the net the easiest factor to keep in mind of. 바카라사이트

    ReplyDelete
  6. Everything is very open with a clear description of the issues. It was definitely informative. Your website is useful. Many thanks for sharing. Feel free to visit my website;
    야설

    ReplyDelete
  7. Great Post! I look forward to seeing more from you in the future. There are some very great ideas above. Feel free to visit my website; 한국야동



    ReplyDelete
  8. With each conceivable response to existing inquiries we get more inquiries all things considered. Feel free to visit my website; 일본야동

    ReplyDelete
  9. Everything is very open with a clear description of the issues. It was definitely informative. Your website is useful. Many thanks for sharing. Feel free to visit my website; 일본야동

    ReplyDelete
  10. Without specific context or background information, it's impossible to determine if Taylor is a hawk or not. More details are needed to provide an informed opinion or analysis. For ecommerce website development company in delhi Visit:- https://www.artattackk.com/




    ReplyDelete
  11. Endangered species of wild animals found in India are the Asiatic Lion in the Gir Forest Nilgiri Tahr and Lion Tailed Macaque in the Western Ghats of India and many more. In the beyond 50 years, the planet has experienced rapid growth of human population, improvement, and urbanization, deforesting masses of millions of acres of forests throughout the globe along the way. Top 10 Endangered Animals. Endangered Animals.

    Endangered Animals

    ReplyDelete
  12. Ben Hardy is a renowned actor hailing from the United Kingdom, known for his contributions to both the small and big screens. He was born on January 2, 1991, in Bournemouth, England, and first garnered attention for his portrayal of Peter Beale in a popular British soap opera, "EastEnders," a role he held from 2013 to 2015.

    Ben Hardy

    ReplyDelete
  13. I’m really enjoying the design and layout of your site.

    ReplyDelete
  14. Thank you, to come here and visit more often.

    ReplyDelete
  15. Thanks for the update and quick reply.

    ReplyDelete
  16. Well I truly enjoyed reading it. Thank you

    ReplyDelete
  17. What an interesting article! I'm glad i finally found what i was looking for.

    ReplyDelete
  18. I was looking it for so long , and i found it finally that i know it will help me .

    ReplyDelete
  19. Some truly choice articles on this site, saved to favorites.

    ReplyDelete
  20. Excellent and very exciting site. Love to watch. Keep Rocking.

    ReplyDelete
  21. I besides conceive thus, perfectly pent post!

    ReplyDelete
  22. Thankyou for this marvellous post, I am glad I found this web site on yahoo.

    ReplyDelete
  23. But wanna comment that you have a very decent web site, I love the layout it really stands out.

    ReplyDelete
  24. Veryy well-written. I am really thankful for sharing your quality words with us.

    ReplyDelete
  25. I like the efforts you have put in this, thanks for all the great posts.

    ReplyDelete
  26. I love the efforts you have put in this, appreciate it for all the great content.

    ReplyDelete

  27. I really happy found this website eventually. Really informative

    ReplyDelete
  28. Loved this insightful blog on Quantitative Easing! Great analysis by Carola Binder. Is Taylor a hawk or not?

    Sattaking

    ReplyDelete

Comments appreciated!