7 Discussion Frederic

Taylor's paper is a useful and balanced discussion of the implications of forward-looking behavior for how monetary policy should be conducted. However, he might leave the reader with a misleading impression that the nonmarket clearing, rational expectations approach that he advocates is an outlying position that is not widely accepted. To the contrary, a high, and I think growing, percentage of economists adheres to this position, although not necessarily to all the details of Taylor's model. This is occumng because as more empirical evidence accumulates, it tends to be favorabe to forward-looking expectations formation, but is much less so to the other implications of the new classical macroeconomic models: the importance of misperceptions to the business cycle, the absence of effects from anticipated policy, and the required degree of price-wage flexibility. The policy prescriptions in John Taylor's paper thus deserve to be taken very seriously by policy makers. Obviously, I am sympathetic to John's approach, and I suspect that I am just the kind of discussant that he would like to have hired for this conference. Instead of trying to find a set of criticisms to level against this paper, I would rather try to give a little more perspective to the approach and expand on some of its policy implications. The approach that Taylor advocates is very much in the research tradition of Keynesian macroeconometric modeling. It involves estimating a structural econometric model which has a wage and price setting sector where markets do not clear in the short run. However, the policy implications of his approach are much closer to those of the "new classical macroeconomics" than to the "Keynesian."' To see this, we should look at the response of these different approaches to the basic question of concern to policymakers right now. Is the fight against inflation worth pursuing and should monetary policy be less accommodative than it has been in the past? Advocates of the Keyne-