Nominal interest rates are unlikely to be generated by unit-root processes. Using data on short and long interest rates from eight developed and six emerging economies, we test the expectations hypothesis using cointegration methods under the assumption that interest rates are near integrated....

We develop a multiple asset rational expectations model of asset prices to study the determinants of financial market contagion, and to provide an explanation for the pattern of contagion during the Asian financial crisis. Our findings show that the pattern and severity of financial contagion...

This paper presents techniques to solve for optimal simple monetary policy rules in rational expectations models, assuming discretion. The techniques described are notable for the flexibility they provide over the structure of the policy rule being solved for. Specifically, not all state...

Despite its role in monetary policy and finance, the expectations hypothesis (EH) of the term structure of interest rates has received virtually no empirical support. The empirical failure of the EH was attributed to a variety of econometric biases associated with the single-equation models most...

Welcome Remarks at a Federal Reserve Bank of Dallas Conference, Dallas, Texas, October 12, 2007. ; "John Taylor has divided his career between academia and government service, and both spheres owe him a debt of gratitude for having done so."

This paper describes a set of algorithms for quickly and reliably solving linear rational expectations models. The utility, reliability and speed of these algorithms are a consequence of 1) the algorithm for computing the minimal dimension state space transition matrix for models with arbitrary...

Development of rational expectations models of the business cycle has been the central issue in macroeconomics over the last 15 years. The postulate that expectations are rational imposes considerable discipline on business cycle analysis. In this essay we review the current literature on...

This paper discusses at an undergraduate level how forecast rationality can be tested. It explains that forecasters should correctly use any relevant information they knew in making their predictions. It shows that forecast rationality can be tested by determining whether the forecasters'...