Editing Taylor rule (section)

== History ==
The concept of a policy rule emerged as part of the discussion on whether monetary policy should be based on intuition/discretion. The discourse began at the beginning of the 19th century. The first formal debate forum was launched in the 1920s by the US House Committee on Banking and Currency. In the hearing on the so-called Strong bill, introduced in 1923 by Representative [[James G. Strong]] of Kansas, the conflict in the views on monetary policy clearly appeared. New York Fed Governor [[Benjamin Strong Jr.]] (no relation to Representative Strong), supported by Professors [[John R. Commons]] and [[Irving Fisher]], was concerned about the Fed's practices that attempted to ensure price stability. In his opinion, Federal Reserve policy regarding the price level could not guarantee long-term stability. After the death of Governor Strong in 1928, political debate on changing the Fed's policy was suspended. The Fed had been dominated by Strong and his [[Federal Reserve Bank of New York|New York Reserve Bank]].

After the [[Great Depression]] hit the country, policies came under debate. [[Irving Fisher]] opined, "this depression was almost wholly preventable and that it would have been prevented if Governor Strong had lived, who was conducting open-market operations with a view of bringing about stability".<ref>{{Cite web |last=Hetzel |first=Robert L. |date=1985 |title=The Rules versus Discretion Debate Over Monetary Policy in the 1920s |website=Federal Reserve Bank of Richmond |url=https://www.richmondfed.org/~/media/richmondfedorg/publications/research/economic_review/1985/pdf/er710601.pdf|language=en }}</ref> Later on, monetarists such as [[Milton Friedman]] and [[Anna Schwartz]] agreed that high inflation could be avoided if the Fed managed the quantity of money more consistently.<ref name="ReferenceA"/>

The economic downturn of the early 1960s in the United States occurred despite the Federal Reserve maintaining relatively high interest rates to defend the dollar under the [[Bretton Woods system]]. After the collapse of Bretton Woods in 1971, the Federal Reserve shifted its focus toward stimulating economic growth through expansionary monetary policy and lower interest rates. This accommodative policy stance, combined with supply shocks from oil price increases, contributed to the Great Inflation of the 1970s when annual inflation rates reached double digits.

Beginning in the mid-1970s, central banks increasingly adopted monetary targeting frameworks to combat inflation. During the [[Great Moderation]] from the mid-1980s through the early 2000s, major central banks including the Federal Reserve and the Bank of England generally followed policy approaches aligned with the Taylor rule, which provided a systematic framework for setting interest rates. This period was marked by low and stable inflation in most advanced economies. A significant shift in monetary policy frameworks began in 1990 when New Zealand pioneered explicit inflation targeting. The [[Reserve Bank of New Zealand]] underwent reforms that enhanced its independence and established price stability as its primary mandate. This approach was soon adopted by other central banks: the [[Bank of Canada]] implemented inflation targeting in 1991, followed by the central banks of Sweden, Finland, Australia, Spain, Israel, and Chile by 1994.<ref name="Pier Francesco Asso 2010"/>

From the early 2000s onward, major central banks in advanced economies, particularly the Federal Reserve, maintained policy rates consistently below levels prescribed by the Taylor rule. This deviation reflected a new policy framework where central banks increasingly focused on financial stability while still operating under inflation-targeting mandates. Central banks adopted an asymmetric approach: they responded aggressively to financial market stress and economic downturns with substantial rate cuts, but were more gradual in raising rates during recoveries. This pattern became especially pronounced following shocks like the dot-com bubble burst, the 2008 financial crisis, and subsequent economic disruptions, leading to extended periods of accommodative monetary policy.<ref name="Boris Hofmann 2012"/>