But perhaps equally important, John’s approach has encouraged a wider acceptance of the study of rules by emphasizing that the objective is to inform discretionary monetary policy decisions rather than to replace discretion by a rule. I find the Taylor rule attractive because it is closely aligned both with the objectives of monetary policy and with the model that governs inflation dynamics.
That is, the rule responds directly to deviations from the Federal Reserve’s objectives - price stability and an equilibrium utilization rate. And it incorporates a preemptive response to inflation that is consistent with models that assign an important role to unemployment or output gaps in inflation dynamics.