Abstract
The paper investigates an econometric method for selecting macroeconomic policy rules when expectations are formed rationally. A simple econometric model of the U.S. is estimated subject to a set of rational expectations restrictions using a minimum distance estimation technique. The estimated model is then used to calculate optimal monetary policy rules to stabilize fluctuations in output and inflation, and to derive a long run tradeoff between price stability and output stability which incorporates the rationally formed expectations. The optimal tradeoff curve is compared with actual U.S. price and output stability and with the results of a monetary policy rule with a constant growth rate of the money supply. 1
Keywords
Rational expectationsEconomicsEstimationEconometricsControl (management)
Related Publications
Monetary Policy during a Transition to Rational Expectations
In standard macroeconomic models incorporating the natural rate hypothesis and rational expectations, monetary policy has no effect on real variables. But the rational expectati...
"Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule
Alternative monetary policies are analyzed in an ad hoc macroeconomic model in which the public's expectations about prices are rational. The ad hoc model is one in which there ...
A Positive Theory of Monetary Policy in a Natural Rate Model
A discretionary policymaker can create surprise inflation, which may reduce employment and raise government revenue. But when people understand the policymaker's objectives, the...
Stabilizing Powers of Monetary Policy under Rational Expectations
The potential of monetary policy to stabilize fluctuations in output and employment is demonstrated in a stochastic rational expectations model in which firms choose, considerin...
Modeling U.S. Budgetary and Fiscal Policy Outcomes: A Disaggregated, Systemwide Perspective
This paper develops and estimates a model of U.S. federal budgetary outcomes that allows for considerable disaggregation across spending categories while providing, through cros...
Publication Info
- Year
- 1979
- Type
- article
- Volume
- 47
- Issue
- 5
- Pages
- 1267-1267
- Citations
- 637
- Access
- Closed
External Links
Social Impact
Altmetric
PlumX Metrics
Social media, news, blog, policy document mentions
Citation Metrics
637
OpenAlex
53
Influential
334
CrossRef
Cite This
John B. Taylor
(1979).
Estimation and Control of a Macroeconomic Model with Rational Expectations.
Econometrica
, 47
(5)
, 1267-1267.
https://doi.org/10.2307/1911962
Identifiers
- DOI
- 10.2307/1911962