Federal Reserve Bank of St. Louis logo
Skip to main content

March/April 2008, 
Vol. 90, No. 2
Posted 2008-03-03

Friedman and Taylor on Monetary Policy Rules: A Comparison

by Edward Nelson

The names Milton Friedman and John Taylor are associated with different monetary policy rules; but, as shown in this article, the difference between their perceptions of how the economy works is not great. The monetary policy rules advanced by Taylor and Friedman are compared by linking the rules to the two economists’ underlying views about nominal rigidity, the source of trade-offs, the sources of shocks, and model uncertainty. Taylor and Friedman both emphasized Phillips curve specifications that impose temporary nominal price rigidity and the long-run natural-rate restriction; and they basically agreed on the specification of shocks, policymaker objectives, and trade-offs. Where they differed was on the extent to which structural models should enter the monetary policy decisionmaking process. This difference helps account for the differences in their preferred monetary policy rules.