Survey_Taylor_1993

Abstract

This is an econometrically-estimated rational expectations model fit to data from theG7 economies for the period 1971:1 to 1986:4. All our simulations focus on the United States.The model was built to evaluate monetary policy rules and was used in the original design ofthe Taylor rule. To model wage and price stickiness Taylor (1993a) used the staggered wage and price setting approach rather than ad hoc lags of prices or wages which characterized the older prerational expectations models. However, because the Taylor (1993a) model was empirically estimated it used neither the simple example of constant-length four-quarter presented in Taylor (1980) nor the geometrically-distributed contract weights proposed by Calvo (1983). Rather it lets the weights have a general distribution which is empirically estimated using aggregate wage data in the different countries. In Japan some synchronization is allowed for.