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The Federal Reserve in a globalized world economy

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  • John B. Taylor

Abstract

This paper starts from the theoretical observation that simple rules-based monetary policy will result in good economic performance in a globalized world economy and the historical observation that this occurred during the Great Moderation period of the 1980s and 1990s. It tries to answer a question posed by Paul Volcker in 2014 about the global repercussions of monetary policies pursued by advanced economy central banks in recent years. I start by explaining the basic theoretical framework, its policy implications, and its historical relevance. I then review the empirical evidence on the size of the international spillovers caused by deviations from rules-based monetary policy, and explore the many ways in which these spillovers affect and interfere with policy decisions globally. Finally, I consider ways in which individual monetary authorities and the world monetary system as a whole could adhere better to rules-based policies in the future and whether this would be enough to achieve the goal of stability in the globalized world economy.

Suggested Citation

  • John B. Taylor, 2014. "The Federal Reserve in a globalized world economy," Globalization Institute Working Papers 200, Federal Reserve Bank of Dallas.
  • Handle: RePEc:fip:feddgw:200
    DOI: 10.24149/gwp200
    Note: Published as: Taylor, John B. (2016), "The Federal Reserve in a Globalized World Economy," in The Federal Reserve's Role in the Global Economy: A Historical Perspective, ed. Michael D. Bordo and Mark A. Wynne (New York, NY: Cambridge University Press), 195-217.
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    References listed on IDEAS

    as
    1. Taylor, John B., 1985. "International coordination in the design of macroeconomic policy rules," European Economic Review, Elsevier, vol. 28(1-2), pages 53-81.
    2. Wieland, Volker & Cwik, Tobias & Müller, Gernot J. & Schmidt, Sebastian & Wolters, Maik, 2012. "A new comparative approach to macroeconomic modeling and policy analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 83(3), pages 523-541.
    3. Boris Hofmann & Bilyana Bogdanova, 2012. "Taylor rules and monetary policy: a global "Great Deviation"?," BIS Quarterly Review, Bank for International Settlements, September.
    4. Johannes C. Stroebel & John B. Taylor, 2009. "Estimated Impact of the Fed's Mortgage-Backed Securities Purchase Program," NBER Working Papers 15626, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F5 - International Economics - - International Relations, National Security, and International Political Economy

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