speech embargo 21 september 2017, 5. 30 pm second karl brunner distinguished lecture introduction of john b. taylor thomas j. jordan chairman of the governing board swiss national bank zurich, 21 september 2017 © swiss national bank page 1 / 4 ladies and gentlemen i am very pleased to welcome you to the 2017 karl brunner distinguished lecture. the swiss national bank established the karl brunner distinguished lecture series to pay tribute to academics whose research is of particular relevance for central banking. with this annual lecture, we want to reach a wide audience, including, in particular, students. for this reason today ’ s event is taking place at the eth zurich, which is internationally one of the most renowned academic institutions. i would like to thank the president of the eth zurich, professor lino guzzella, for making these fantastic premises available to us. this year, we are paying tribute to john b. taylor. he is one of the world ’ s foremost economists. john ’ s work is characterised by a keen interest in highly relevant questions, from both an academic and an applied point of view. he has made major contributions to economic theory. in addition, by bridging the divide between theory and practice, he is one of few economists to have had a profound impact on economic policy and thus on macroeconomic stability. john is also a very effective teacher. just let me give you one example. did you know that tiger woods, the famous golf professional, was his student in the introductory class at stanford? john taught tiger about opportunity costs. immediately afterwards, tiger left college and joined the pro tour. clearly, a decision that paid off. but back to john taylor again. today, he will talk about ‘ ideas and institutions in monetary policy making ’. before giving him the floor, i will briefly introduce him. born in yonkers, new york, john taylor earned his a. b. from princeton university and his ph. d. from stanford. he taught at columbia university from 1973 – 1980 and at princeton university from 1980 – 1984. and since 1984, he has been teaching and researching at stanford. john is the perfect economist. he is outstanding as a researcher, policy advisor and teacher. in acknowledgment of his exceptional services, he has received a number of prestigious awards for excellence in all these three fields. let me say a few words about each of these areas, beginning with john taylor the researcher. his research topics range from work

on rational expectations to wage and price dynamics, macroeconomics, econometrics, fiscal policy, and, of course, monetary policy. he has written an impressive number of influential articles in leading journals and important books. it is impossible to summarise his research in a few sentences. therefore, i will limit myself to two topics. the first topic dates back to the second half of the 1970s, when john initiated a research strategy that would have a profound and lasting impact on our profession. it was a time when the new - classical macroeconomists were claiming that monetary policy was powerless when it came to steering the economy. this challenged both the keynesian and the monetarist views. john quickly accepted the new concept of rational expectations. however, he rejected page 2 / 4 the assumption that markets always clear, and that prices and wages are perfectly flexible. his research showed that – as a result of staggered wage contracts – monetary policy, even if anticipated, can be useful for stabilising the economy. this restored the proposition of keynesian and monetarist models that even anticipated changes in money affect the economy. the second topic i would like to highlight is a recurrent theme in john ’ s research agenda. this is his deep interest in rules for monetary policy. john ’ s research has always emphasised the importance of rule - like, systematic behaviour for monetary policy. however, by the late 1980s, many people were arguing that efficient rules would have to be very complex, and expressed severe doubts about the practicability of rules for monetary policy. so john decided it was time to write down a workable rule that was consistent with his research. the result was a simple equation to guide interest rate decisions at the fed. the equation related the policy rate to inflation and unemployment. when he presented his rule at a carnegierochester conference in november 1992, he did not regard it as a big deal. it turned out quite differently. his paper, published in 1993, has become one of the most cited works in macroeconomics. the rule became known as the taylor rule. my experience at the snb testifies the importance of the taylor rule. for us, the taylor rule derives its appeal from three features. the first is its simplicity in describing the behaviour of different central banks by estimating the policy reaction to deviations from the inflation target and to the output gap. the second is its quality as a benchmark in assessing the current stance of monetary policy with