"[…] The alternative Taylor rule (that replaces the current rate of inflation on the right-hand side with a forecast of inflation over the current and subsequent three quarters) prescribes a path for policy that is much closer to that followed throughout the decade, including recent years. In other words, when one takes into account that policymakers should and do respond differently to temporary and longer-lasting changes in inflation, monetary policy following the 2001 recession appears to have been reasonably appropriate, at least in relation to a simple policy rule."
Taylor’s disagreement
"[…] The speech was largly an attempt to refute the now commonly held view that the Fed held interest rates too low for too long in 2002-2005. I was in Atlanta and though I could not go to the speech I read it afterwards and expressed by disagreement first in a Bloomberg interview with Steve Matthews and later in a CNBC interview with Larry Kudlow and will follow up with more details; note that a working paper prepared by seven Fed Board staff was released just before the speech. Others have raised questions about the speech from a variety perspectives […] "
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