Taylor rule quote of the day

We have all heard a lot about how the Taylor rule suggests the US needs a -5% cash rate, which is why this quote in a Bloomberg article was not surprising:

The rule might suggest the need by the end of 2009 of a funds rate of minus 7.5 percent, Laurence Meyer, vice chairman of Macroeconomic Advisers, said in a note to clients in March.

Another quote in the article, from John Taylor himself, was far more interesting:

He said his rule suggests a fed funds rate of 0.5 percent, while the central bank has cut rates to between zero percent and 0.25 percent.

What the hell?  So the guy that invented the rule is estimating a completely different appropriate target rate.  Now John Taylor is a clued on guy, so this definitely has led me to revise down my view of how much monetary stimulus the US will need.

My suspicion is that his view of potential output is well below the view of some other economists.  It is a possibility that we have also raised.

  • Taylor Rule quote of the day? Heh, if you can do these daily I will be most impressed.

  • @Tom M

    I think if I did Taylor rule quotes daily I would probably lose my mind 😀