Measuring macroeconomic performance through a non-parametric Taylor curve

Recently, frontier techniques have been utilised in the measurement of countries' macroeconomic performance by constructing a "production set" where the outputs are some macroeconomic indicators, while the inputs collapse to a unit scalar. In the present study, a different approach is proposed. The trade-off between the variability of inflation and of the level of activity (often defined as the Taylor Curve) is posited as the relevant policy frontier. This frontier is estimated through non-parametric techniques on a sample of 19 OECD countries during the 1960-99 period. There seems to be a definite role for cost-shocks, as well as for some supply-side characteristics, in shifting the variability trade-off. Also, the relative shadow price of the variability of inflation increases over time. Countries appear on the whole to have become slightly more efficient, but their performance has worsened, because the frontier has shifted upwards.