Jon Hartley on the Legacy of John Taylor and his New Measure of R-Star - Macro Musings with David Beckworth Recap

Podcast: Macro Musings with David Beckworth

Published: 2025-09-29

Duration: 1 hr 4 min

Guests: Jon Hartley

Summary

Jon Hartley discusses the enduring influence of John Taylor's contributions to macroeconomics, focusing on Taylor's rules and the concept of R-Star. Hartley introduces a new empirical approach to measuring R-Star using survey data from market participants.

What Happened

Jon Hartley, a macroeconomist at the Mercatus Center, joins David Beckworth for a deep dive into John Taylor's legacy and contributions to macroeconomics. Hartley, along with co-authors Michael Bordo and John Cochran, has recently published a paper that celebrates Taylor's influence over the past 50 years, highlighting his groundbreaking work on the Taylor Rule and its application in monetary policy.

Hartley explains that the Taylor Rule, introduced in 1993, has become a cornerstone in monetary policy, describing how central banks set interest rates based on inflation and the output gap. He also discusses Taylor's earlier work on sticky prices, which laid the foundation for New Keynesian models by introducing nominal rigidities that allow monetary policy to have real effects.

During the episode, Hartley emphasizes the global impact of Taylor's work, noting that the Taylor Rule has been adopted by central banks worldwide. He recounts Taylor's efforts to engage directly with international policymakers, enhancing the rule's reach and application.

The discussion also covers Hartley's own research on R-Star, the neutral interest rate, which is crucial for assessing the stance of monetary policy. Hartley critiques traditional model-based measures of R-Star, like Lubik-Williams, and proposes using survey-based estimates from market participants for a more accurate reflection of current economic conditions.

Hartley argues that survey-based measures provide a valuable alternative to model-based estimates, which can be misspecified. He details how these surveys can offer insights into market participants' expectations and help central banks fine-tune policy decisions.

The episode touches on recent shifts in U.S. Treasury debt management, with a focus on issuing more short-term debt to reduce interest costs. Hartley defends this strategy, citing strong demand for Treasury bills and the fiscal savings it can generate, despite criticisms of potential increased rollover risk.

Finally, the conversation reflects on the broader implications of fiscal policy and debt management in the context of potential fiscal dominance, with Hartley expressing optimism about the U.S.'s ability to manage its debt through economic growth and innovative capacity.

Key Insights