The Economics Book

IN CONTEXT

FOCUS

The macroeconomy

KEY THINKER

John Taylor (1946–)

BEFORE

1936 John Maynard Keynes argues that government intervention can pull economies out of recessions.

1976 Thomas Sargent and Neil Wallace argue that rational expectations make Keynesian macroeconomic policies useless.

AFTER

1985 Greg Mankiw suggests that “menu costs”—the cost to a firm of making price changes—may cause price stickiness.

1990 US economist John Taylor introduces the “Taylor rule,” showing that central banks should run active monetary policies to stabilize the economy.

Keynesian economics assumes that wages in money terms tend not to fall: they are “sticky” and respond only ...