During a lengthy and technical-jargon-ridden response, Fed Chair Janet Yellen attempted to defend the fact that she is holding rates around 350bps below “fair” value based on The Taylor Rule.
Her argument, simple, John Taylor – the model’s creator – is using the wrong rate.
Fellow PhD economist Taylor was not amused and responded rapidly on Twitter…
.@steveliesman Response on pp 9-11 of https://t.co/DRjJKrRThK: We show good reasons to think neutral rate has not changed as she suggests.
— John B. Taylor (@EconomicsOne) June 21, 2016
His paper explains why Yellen is wrong… But Steve Liesman sums it up best – as he truly appears to have come to the heretical non-believer side of the Federal Reserve faith-based policy decision-making…
Taylors' paper: if u adjust "a policy rule in a purely discretionary way, then it is not a rule at all any more" https://t.co/nT2Iql07dF
— Steve Liesman (@steveliesman) June 21, 2016
Taylor-Wieland Paper on Equilibrium Interest Rate April 2016
via http://ift.tt/28PzDqH Tyler Durden