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※ 번역할 언어 선택

Vice Chairman Donald L. Kohn
At the Conference on John Taylor's Contributions to Monetary Theory and Policy, Federal Reserve Bank of Dallas, Dallas, Texas
October 12, 2007

John Taylor Rules

The Role of Simple Rules in Monetary Policymaking
It is a pleasure and an honor to speak at this conference honoring John Taylor and his contributions to monetary theory and policy. As you have already heard from Chairman Bernanke and the other speakers today, John has made a number of seminal contributions to the field of macroeconomics. What has distinguished John's work, in my view, is that he takes policymaking in the real world seriously.1

Taking policymaking seriously involves understanding the constraints imposed on our decisions by partial information and incomplete knowledge of economic relationships. It also implies the use of empirically valid models that acknowledge the efforts of households and businesses to anticipate the future and maximize their welfare over time. In the late 1980s and early 1990s, macroeconomics was focused mainly on real business cycles and endogenous growth theory. During this period, John was one of a very small number of academic economists who continued to pursue research aimed at informing the conduct of monetary policy. John's Carnegie Rochester conference paper published in 1993 is an excellent example of this research.

Importantly, John's legacy to the Federal Reserve has not been confined to enhancing our understanding of monetary policy. In addition, he has turned out legions of students who have followed in his footsteps in their interest in policy. Many of them have spent time in the Federal Reserve, producing a rich array of contributions to policymaking and research.

John and I have spent countless hours discussing how the Federal Reserve arrives at decisions about monetary policy and how it should arrive at decisions. Those conversations began in earnest in the late 1980s, when John was on the Council of Economic Advisers, and they have continued to the present day. They have occurred not only in offices and classrooms in Washington and Stanford and at numerous conferences around the globe, but also around dinner tables in Washington and Palo Alto and on hiking trails from Vermont to Wyoming. Those conversations made me a better policy adviser and then policymaker, and they have had the added and very special bonus of allowing Gail and me to count John and Allyn among our friends. I can't think of a better way to honor John's contributions than to continue that discussion around the dinner tables of Dallas by reflecting on the role of simple rules in informing policymaking.

Three Benefits of Simple Rules in Monetary Policymaking
In his Carnegie Rochester conference paper, John considered a simple policy rule under which the nominal federal funds rate is adjusted in response to both the gap between real and trend gross domestic product (GDP) and the gap between the inflation rate and policymakers' target. Based on data for the previous few years, John calibrated the long-run target for inflation and the two parameters that determine the responsiveness of the federal funds rate to the two gaps. The equilibrium real interest rate was based on a longer history of actual real interest rates. In the handout, Figure 1A depicts the actual nominal funds rate and the Taylor rule prescriptions between 1987 and 1992, as presented in John's paper. Despite its simplicity, this policy rule fits the data remarkably well; it described a period of generally successful policymaking; and it adhered to the Taylor principle of adjusting the nominal rate more than one-for-one with changes in the inflation rate, so it provided a plausible template for future success. It is no wonder that John has been such a dedicated salesman and that his efforts have been so well received in academia and policy councils.



Following John's seminal contribution, many other economists have engaged in research on similar policy rules and, together with John, have identified several benefits of such rules in conducting monetary policy. I will elaborate on three of them.

The first benefit of looking at a simple rule like John's is that it can provide a useful benchmark for policymakers. It relates policy setting systematically to the state of the economy in a way that, over time, will produce reasonably good outcomes on average. Importantly, the emphasis is on levels and gaps, not growth rates, as inputs to the policy process. This emphasis can be a problem when a level, say of potential GDP, is in question, but in many respects it is also a virtue. For the United States, the two gaps relate directly to the legislative mandate of the Federal Reserve to achieve stable prices and maximum employment. Moreover, those two gaps fit directly into most modern macroeconomic theories, which tell us something about their relationship and how that relationship can be affected by the type of shock hitting the economy.

Model uncertainties make the simplicity of the rule particularly important for the policymaker because research suggests that the prescriptions from simple rules can be more robust than optimal-control policies. Optimal-control policies can depend critically on the exact specification of the model, and clearly there is no consensus about which model best describes the U.S. economy.

Federal Reserve policymakers are shown several versions of Taylor rules in the material we receive before each meeting of the Federal Open Market Committee (FOMC). I always look at those charts and tables and ask myself whether I am comfortable with any significant deviation of my policy prescription from those of the rules.

A second benefit of simple rules is that they help financial market participants form a baseline for expectations regarding the future course of monetary policy. Even if the actual policy process is far more sophisticated than any simple rule could completely describe, the rule often provides a reasonably good approximation of what policymakers decide and a framework for thinking about policy actions. Indeed, many financial market participants have used the Taylor rule to understand U.S. monetary policy over the past fifteen years. Investors and other market participants are going to form expectations about policy and act on those expectations. The more accurate and informed those expectations are, the more likely are their actions to reinforce the intended effects of policy.

A third benefit is that simple rules can be helpful in the central bank's communication with the general public. Such an understanding is important for the transmission mechanism of monetary policy. Giving the public some sense of how the central bank sees the output and inflation gaps and how they are expected to evolve will help it understand the central bank's objectives and how policymakers are likely to respond to surprises in incoming data.

Four Limitations of Simple Rules
Simple rules have limitations, of course, as benchmarks for monetary policy. To quote from John's Carnegie Rochester paper, "a policy rule can be implemented and operated more informally by policymakers who recognize the general instrument responses that underlie the policy rule, but who also recognize that operating the rule requires judgment and cannot be done by computer" (p. 198). In that context, four limitations of simple rules are important.

The first limitation is that the use of a Taylor rule requires that a single measure of inflation be used to obtain the rule prescriptions. The price index used by John in the Carnegie Rochester paper was the GDP price deflator. Other researchers have used the inflation measure based on the consumer price index (CPI). Over the past fifteen years, the Federal Reserve has emphasized the inflation rate as measured by changes in the price index for personal consumption expenditures (PCE). Many researchers have also explored the use of core price indexes, which exclude the volatile food and energy components, as better predictors of future inflation or as more robust indicators of the sticky prices that some theories say should be the targets of policy. To be sure, over long periods, most of these measures behave very similarly. But policy is made in the here and now, and the various indexes can diverge significantly for long stretches, potentially providing different signals for the appropriate course of monetary policy.

Second, the implementation of the Taylor rule and other related rules requires determining the level of the equilibrium real interest rate and the level of potential output; neither of them are observable variables, and both must be inferred from other information. John used 2 percent as a rough guess as to the real federal funds rate that would be consistent with the economy producing at its potential. But the equilibrium level of the real federal funds rate probably varies over time because it depends on factors such as the growth rate of potential output, fiscal policy, and the willingness of savers to supply credit to households and businesses. Inaccurate estimates of this rate will mislead policymakers about the policy stance required to achieve full employment. In a similar vein, real-time estimates of potential output can be derived in a number of ways and--as shown by Orphanides (2003) and others--they are subject to large and persistent errors. If policymakers inadvertently rely on flawed estimates, they will encounter persistent problems in achieving their inflation objective.

The third limitation of using simple rules for monetary policymaking stems from the fact that, by their nature, simple rules involve only a small number of variables. However, the state of a complex economy like that of the United States cannot be fully captured by any small set of summary statistics. Moreover, policy is best made looking forward, that is, on the basis of projections of how inflation and economic activity may evolve. Lagged or current values of the small set of variables used in a given simple rule may not provide a sufficient guide to future economic developments, especially in periods of rapid or unusual change. For these reasons, central banks monitor a wide range of indicators in conducting monetary policy. In his Carnegie Rochester paper, John mentioned the stock market crash of October 1987 as an example of how other variables can and should influence the course of monetary policy in some situations.

The final limitation I want to highlight is that simple policy rules may not capture risk-management considerations. In some circumstances, the risks to the outlook or the perceived costs of missing an objective on a particular side may be sufficiently skewed that policymakers will choose to respond by adjusting policy in a way that would not be justified solely by the current state of the economy or the modal outlook for output and inflation gaps.

Policy Rules around 2003
Some of the ambiguities and potential pitfalls in the use of simple policy rules are highlighted by considering their prescriptions for a period earlier in this decade. Turning to Figure 1B, the solid line indicates the actual federal funds rate between the first quarter of 1993 and the second quarter of 2007, and the dashed line shows the prescriptions of the Taylor rule using the same methodology that John used in his Jackson Hole remarks this year.2 For the earlier part of the sample, the prescription from this simple rule tracks the actual funds rate relatively well. As John pointed out, a notable deviation happened beginning in 2002, and I would like to discuss that period to illustrate the limitations I noted earlier.



Inflation Measure
The first limitation is related to the measure used for the inflation variable included in the rules. The rule prescriptions depicted by the dashed line in Figure 1B are based on the headline CPI. But as you know, the FOMC often looks at core inflation, stripping out the effects of energy and food prices, as a better indicator of future price behavior. The dotted line represents the rule prescriptions based on the chain-weighted core CPI, which the Bureau of Labor Statistics has produced since 2000. Using this measure lowers the prescribed funds rate by about 2 percentage points during 2003, bringing the rule prescriptions much closer to the actual path of policy. The reason for the improvement is evident from Figure 2A, on the other side of the handout: Even though the headline and core CPI measures were broadly similar in the mid- to late 1990s, these measures diverged substantially between 2003 and 2005.


Potential Output
The second limitation relates to the challenge of judging the level of potential output in real time. To illustrate this point, Figure 2B plots three measures of the output gap. The solid line is the real-time estimate by the Congressional Budget Office (CBO) that was used in the Taylor rule prescriptions in Figure 1B, while the dashed line depicts the CBO's ex post estimate of the output gap as of the third quarter of 2007. Back in 2003, the CBO estimated that output at that time was below potential by only 1 percent. With the benefit of four more years of data, the CBO currently estimates that the output gap for the first half of 2003 was considerably wider--about 3 percent. In addition, the dotted line represents an alternative measure of resource utilization derived from the unemployment rate and an estimate of the natural rate of unemployment (NAIRU) taken from the Board staff's FRB/US model. In fact, the unemployment rate was rising through the middle of 2003, so the FOMC had every reason to believe that the output gap was widening at that time. Using this unemployment-based measure rather than the real-time CBO measure would reduce the prescriptions of simple policy rules by roughly 1/2 percentage point in early 2003.


Other Variables
The third limitation in my list was that the small set of economic measures included in simple rules may not fully reflect the state of the economy. Around 2003, financial market conditions may not have been adequately summarized by the assumed 2 percent equilibrium federal funds rate. Accounting scandals caused economic agents to lose confidence in published financial statements and in bond ratings. The result was higher uncertainty about the financial health of firms, and credit spreads widened substantially. Figure 2C shows that risk spreads on corporate bonds were elevated in this period. Other things equal, such spreads would reduce the federal funds rate needed to achieve full employment, perhaps explaining a portion of the gap between the actual federal funds rate and the outcome from the policy rule during this period.


Risk Management
The last item on my list of limitations was that simple rules do not take account of risk-management considerations. As shown in Figure 2A, the core CPI inflation rate for 2003 was falling toward 1 percent. The real-time reading of the core PCE inflation rate (not shown) was on average even lower than the comparable CPI figure. Given these rates, the possibility of deflation could not be ruled out. We had carefully analyzed the Japanese experience of the early 1990s; our conclusion was that aggressively moving against the risk of deflation would pay dividends by reducing the odds on needing to deal with the zero bound on nominal interest rates should the economy be hit with another negative shock. This factor is not captured by simple policy rules.

A Final Note
I have offered this analysis in the spirit of so many of the discussions I have had with John. His framework has been enormously important to policymaking in the Federal Reserve, and it has yielded many benefits. Nevertheless, it's important to keep in mind that some significant practical limitations also are associated with the application of such rules in real time. In other words, it's not so simple to use simple rules!

References
Orphanides, Athanasios (2003). "The Quest for Prosperity without Inflation," Leaving the Board Journal of Monetary Economics, vol. 50 (April), pp. 633-63.

Poole, William (2007). "Understanding the Fed (210 KB PDF)," Federal Reserve Bank of St. Louis, Review, vol. 89 (January/February), pp. 3-14, http://research.stlouisfed.org/publications/review/past/2007.

Taylor, John B. (1993). "Discretion versus Policy Rules in Practice," Leaving the Board Carnegie-Rochester Conference Series on Public Policy, vol. 39, pp. 195-214, http://econpapers.repec.org/article/eeecrcspp/default1993.htm.

_________ (2007). "Housing and Monetary Policy (244 KB PDF)," speech delivered at "Housing, Housing Finance, and Monetary Policy," a symposium sponsored by the Federal Reserve Bank of Kansas City, held in Jackson Hole, Wyo., August 30-September 1, www.kansascityfed.org/publicat/sympos/2007/pdf/2007.09.04.Taylor.pdf.

Footnotes

1. I am sure my colleagues join me in honoring John. However, my thoughts on policy rules are my own and not necessarily those of my colleagues on the Federal Open Market Committee. Jinill Kim and Andrew Levin, of the Board's staff, contributed to the preparation of these remarks.

2. Following John, the rule specification and the data used for the prescriptions closely follow the implementation of the Taylor rule in Bill Poole's speech in August 2006 (Poole, 2007). The inflation measure used for this rule is the four-quarter average headline CPI inflation rate, with the benchmark value set to 2 percent. Through 2001, the gap between real GDP and its potential is the value measured in real time by the staff of the Board of Governors. Because subsequent staff estimates of the output gap are not yet publicly available, the rule prescriptions for the post-2001 period are computed with the real-time output gap as constructed by the Congressional Budget Office.

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14~15일 중부 최대 120㎜ 폭우 예고 [서울=뉴스핌] 김지나 기자 = 행정안전부가 14일 오후부터 중부지방을 중심으로 강풍을 동반한 집중호우가 예보됨에 따라 관계기관 대책회의를 열고 침수·산사태 우려 지역에 대한 선제 점검과 통제 강화를 지시했다. 행정안전부는 14일 윤호중 장관 주재로 관계기관 대책회의를 개최하고 호우와 강풍에 대비한 대응 상황을 점검했다고 밝혔다. 회의에는 행정안전부와 농림축산식품부, 기상청 등 10개 중앙행정기관과 16개 지방자치단체, 한국공항공사 등이 참석했다. 폭우가 쏟아진 9일 오전 서울역 인근에서 우산을 쓴 시민들이 발걸음을 재촉하고 있다. [사진=뉴스핌DB] 기상청에 따르면 이날 저녁부터 15일 새벽까지 수도권과 강원, 충청권을 중심으로 돌풍과 천둥·번개를 동반한 시간당 20~30㎜, 경기·강원 북부는 시간당 30~50㎜의 매우 강한 비가 내릴 것으로 예보됐다. 예상 강수량은 수도권 30~100㎜(경기 북부 최대 120㎜ 이상), 강원 내륙·산지 30~80㎜(많은 곳 100㎜ 이상), 충청권과 전북 30~80㎜, 전남과 제주 20~60㎜ 등이다. 행안부는 퇴근 시간대와 심야 시간에 강한 비가 집중될 것으로 예상되는 만큼 인명피해 예방에 중점을 두고 대응할 것을 관계기관에 주문했다. 우선 상습 침수지역과 피해 우려지역에 대한 사전 점검을 강화하고, 지하차도와 하상도로 등 침수 취약 구간은 실시간 모니터링을 통해 필요 시 선제적으로 출입을 통제하도록 했다. 빗물받이 이물질 제거와 반복 점검도 실시해 침수 피해를 최소화할 방침이다. 반지하주택과 하천변 산책로 등 침수 취약지역에 대한 예찰도 강화한다. 지난 8~10일 내린 비로 지반이 약해진 산지와 급경사지 등 붕괴 우려 지역은 사전 점검을 실시하고, 위험 징후가 확인되면 주민들이 신속히 대피할 수 있도록 안내할 계획이다. 특히 고령자 등 자력 대피가 어려운 주민은 주민대피지원단과 연계해 1대1 지원 체계를 재점검하도록 했다. 강풍에 대비한 안전조치도 강화된다. 행안부는 순간풍속 초속 20m 이상의 강풍이 예상됨에 따라 옥외광고물과 가로수, 건설현장 크레인, 공사장 가설시설 등 전도와 낙하 위험 시설물은 사전에 고정하거나 철거하도록 요청했다. 또 재난문자와 마을방송 등 다양한 매체를 활용해 기상정보와 국민행동요령을 신속히 전파하고 외출 자제와 위험지역 접근 금지 등을 적극 안내할 계획이다. 김용균 자연재난실장은 "정부는 집중호우와 강풍으로 인한 피해를 최소화하기 위해 대응체계를 빈틈없이 유지하겠다"며 "국민 여러분께서도 기상정보와 재난문자를 수시로 확인하고, 안전수칙을 준수해 주시길 바란다"라고 말했다.   abc123@newspim.com 2026-07-14 10:02
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트럼프 "호르무즈 통행료 20% 징수" [워싱턴=뉴스핌] 박정우 특파원 = 도널드 트럼프 미국 대통령은 13일(현지시간) 이란 항구에 대한 미 해군의 봉쇄조치를 재개한다고 선언했다. 또 미국이 호르무즈 해협을 통과하는 선박들에 안전을 제공하는 비용으로 선적 화물의 20%를 부과할 것이라고 밝혔다. 트럼프 대통령은 이날 소셜미디어 트루스소셜을 통해 "호르무즈 해협은 열려 있을 것이며, 이란이 원하든 원하지 않든 유지될 것"이라며 "이란 봉쇄(THE IRANIAN BLOCKADE) 조치를 재개한다"고 밝혔다. 이어 이란과 관련 물류 수송을 제외한 "다른 모든 국가들은 해협을 공정하고 자유롭게 이용할 수 있다"고 덧붙였다. 트럼프 대통령은 그러면서 미국이 '호르무즈 해협의 수호자(THE GUARDIAN OF THE HORMUZ STRAIT)'가 될 거라며 안전 제공 비용을 청구할 것이라고 선언했다. 그는 미국이 "수호자로서, 그리고 공정함의 차원에서, 이 불안정한 세계 요충지에 안전과 보안을 제공하는 업무에 필요한 모든 비용에 대해 선적 화물의 20% 비율로 보상(비용 청구)을 받을 것"이라며 관련 절차가 즉시 시작된다고 덧붙였다. 트럼프 대통령의 이날 대 이란 봉쇄 재개와 호르무즈 안전 제공 비용 징수 선언은 이란이 미국의 호르무즈해협 개방 요구를 거부하고 폐쇄를 선언한 뒤 나왔다. 미군은 이란에 대한 추가 공격에 나서 방공망과 드론 전력 등을 타격했다. 이로써 이란과 휴전 합의로 종료됐던 이란 항구에 대한 미군의 해상 봉쇄가 3주 만에 재개됐다. 트럼프 대통령은 특히 호르무즈해협을 미국이 관리하고 그 대가를 받겠다는 입장을 밝히며 사실상 해협 통제권 확보 의지를 드러냈다는 평가다. 반면 이란 군은 어떠한 경우에도 미국이 해협 관리에 개입하는 것을 허용하지 않겠다고 반발하고 있어 양측의 충돌이 격화될 가능성이 커 보인다는 평가다. 월스트리트저널(WSJ)은 "양측의 대립은 해협 통제권을 둘러싼 대치 상태가 지속될 가능성을 예고한다"며 "글로벌 석유 시장에 추가적인 압박을 가할 위험이 있다"고 경고했다. 실제 호르무즈 해협을 둘러싼 미국과 이란 간 대치 격화 속에 이날 브렌트유 가격은 배럴당 79달러대까지 오르며 약 4% 상승한 것으로 집계됐다. 호르무즈 통행량 회복세도 이미 꺾이는 등 해상 물류 위축 움직임은 이미 현실화하고 있다는 지적이다. 선박 추적 데이터 업체 케플러(Kpler)는 지난 주말 호르무즈 해협을 통과한 것으로 확인된 선박 수가 전주 대비 절반 이상 감소한 19척에 불과했다고 밝혔다. 이는 미국과 이란 간 예비 평화 협정인 양해각서(MOU)가 체결되기 전과 비슷한 수준으로 케플러는 대부분의 선박이 이란이 승인한 항로나 비밀 경로를 이용했으며, 미국이 지원하는 오만 인근 통로를 통한 통행은 끊겼다고 전했다. WSJ은 미국이 트럼프 대통령이 공언한 대로 호르무즈 해협을 군사적으로 장악하려면 상당한 규모의 지상군 침공이나 위험한 해군 작전이 필요할 것으로 전망했다.  도널드 트럼프 미국 대통령의 트루스소셜 게시글. [사진=트루스소셜] dczoomin@newspim.com 2026-07-14 00:17
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