The Taylor Rule and its Aftermath: Elements for an Interpretation along Classical-Keynesian lines

CSWP 59 (October 2022)

Author Enrico Sergio Levrero

Keywords Monetary policy; Taylor rule; Cost-push inflation

JEL E11; E12; E52; E58

The aim of this paper is to assess to what extent the Taylor rule can be considered an appropriate representation of the tendency of central banks to react to price inflation. After an overview of the origin and use of the Taylor rule, the paper stresses some difficulties in its implementation according to the modern theory of central banking and the limits of its interpretation by the New Consensus models. Finally, an alternative interpretation of this rule along Classical-Keynesian lines is advanced. In this context, it has to be interpreted, as it is in actual fact, as a flexible and non-mechanical benchmark for monetary policies which are seen to affect income distribution between wages and profits.

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