This page contains the complete book Macroeconomic Policy in a World Economy in pdf format for viewing, downloading, or printing. The book describes the theoretical form and the empirical estimation of a forward-looking multicountry model (sometimes called the Taylor Multicountry Model). The page also has downloadable programs to simulate the model and data from which original estimates were made. There are also links to some recent papers that have used the model for stochastic simulations and monetary policy evaluation.
click for back cover
Macroeconomic Policy in a
From Econometric Design to Practical Operation
JOHN B. TAYLOR
W.W. Norton, New York, On Line Edition, 1999
Preface for On-Line Edition
Table of Contents, List of Figures, List of Tables, Original Preface and Acknowledgments
PART I. INTRODUCTION
Chapter 1. Macroeconomic Policy Questions and Methods
Chapter 2. A First Look at Econometric Policy Evaluation
PART II. AN INTERNATIONAL MACROECONOMIC FRAMEWORK
Chapter 3. Building a Multicountry Empirical Structure
Appendix 3a. Estimation and Test Procedures
Appendix 3b Summary of Elasticities
Chapter 4 Shocks and Disturbances to the World Economy
Chapter 5. The Impact of Monetary and Fiscal Instruments
Chapter 6. Design of Policy Systems
PART III. ECONOMETRIC POLICY EVALUATION
Chapter 7. Transitions to New Policy Systems
Chapter 8. Policy Systems in Operation
Appendix 1 Data
Appendix 2 Computer Programs
Program to simulate the
multicountry model using the extended path algorithm,
and data used to estimate original equations
Rational Expectations Model Simulation Program
Program Manual by John Williams
Raw or converted data ( Pkunzip).
Recent research papers using
the multicountry model for policy analysis:
The Robustness and Efficiency of Monetary Policy Rules as Guidelines for the ECB (1999). This paper simulates the multicountry model stochastically to see whether inflation forecast targeting rules or exchange rate oriented policy rules work better than my simple rule as a guideline for the European Central Bank. The model emulates the European Monetary Union by permanently placing Germany, France, and Italy in a single currency area and letting the pound float against with Euro along with the U.S. dollar, the Canadian dollar and the Japanese yen.
The Policy Rule Mix: A Macroeconomic Policy Evaluation (1999) This paper was written for Robert Mundell's festschrift. By simulating the multicountry model stochastically, it examines how much fiscal policy would have to react if monetary policy makers could not react to output--perhaps because of a law or custom that lead them to react only to inflation. Because monetary policy reacts only to inflation and fiscal policy reacts only to real output, the situations is similar to Robert Mundell's famous policy mix proposal, except that it refers to policy rules and the reaction variable rather than the target variable.
Monetary Policy Implications of Greater Fiscal Discipline (1995). This paper is the mirror image of the previous paper. It examines how much more monetary policy should react to real output if fiscal policy (through the automatic stabilizers) could not react to real output, perhaps because of a balanced budget amendment that did not permit deficits. Simulating the multicountry model stochastically, I find that the coefficient on output in the monetary policy rule is higher than without the constraint on fiscal policy.
Robustness of Simple Monetary Policy Rules Under Model Uncertainty. (1999) Andrew Levin, Volker Wieland, and John Williams wrote this paper for a conference volume on monetary policy rules that I edited. They simulate the multicountry model as well as several other models to see if simply policy rules are more robust than complex rules. They find that the simple rules are more robust.
The Use of the New Macroeconometics for Policy Formulation. (1993) Prepared for the AEA papers and proceedings, this short paper explains how the multicountry model (as an example of an estimated rational expectations models with forward looking behavior) can be used to estimate the impact of announced changes in fiscal policy. These types of simulations were used to calculate how much real interest rates would be expected to fall for a given reduction in the government budget deficit (or increase in the surplus).
The Monetary Transmission Mechanism: An Empirical Framework (1995, waiting for link). Published in the Journal or Economic Perspectives, this paper presents a general framework for monetary policy analysis within which the multicountry model takes an explicit form. The framework emphasizes financial market prices (short term interest rates, long term interest rates, exchange rates) rather than monetary aggregates or credit flows, arguing that the effects of such prices on the economy are easier to estimate empirically.
Monetary Policy Targets and the Stabilization Objective: A Source of Tension in the EMS (1996, waiting for link), Journal of International Money and Finance. In this paper Volker Wieland uses the multicountry model to simulate the possible deterioration in macroeconomic performance in Germany and the improvement in macroeconomic performance in France and Italy that would accompany a single currency. With a single currency a new European Central Bank would pay attention to all of Europe rather than to Germany alone as the Bundesbank tended to do with the EMS.
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