In this long-awaited book, John B. Taylor sets forth an alternative to the Keynesian econometric analysis traditionally applied by macroeconomic policymakers.

The book benefits not only from Professor Taylor's well-established international reputation as a leading expert on macroeconomic theory but also from his policy experience "inside the beltway," including two and one-half years' service as a member of the Council of Economic Advisers where he was responsible for macroeconomic and international economic issues.

The notion of a policy rule, defined as the systematic response of the policy instruments to the state of the economy, is pervasive in modern macroeconomic research. Experts like Professor Taylor regularly respond to questions about how policy affects the economy. Sometimes the questions - such as the independence of the central bank, the formation of a currency bloc, the enforcement of government budget rules - concern the fundamental design of the policy-making institutions.

At other times the questions are about implementation of new monetary or fiscal policies - such as how fast to move to a noninflationary monetary policy or how soon to reach a balanced budget. Most frequently the questions concern much shorter term operational issues, such as whether - in any given week or month - the central bank should be raising or lowering short-term interest rates

1. The purpose of this book is to develop a framework based on a set of policy rules to answer such questions. Professor Taylor accomplishes this, bringing to bear all the advantages of modern macroeconomics, econometrics, and computer simulation techniques - to which his own research has contributed greatly. The resulting volume forms essential reading for all serious students of macroeconomic policy, whether from the academic or policy perspective.