[4][5] In a 1993 paper he proposed the Taylor rule,[6] intended as a recommendation about how nominal interest rates should be determined, which then became a rough summary of how central banks actually do set them.

[9] Born in Yonkers, New York, Taylor graduated from Shady Side Academy[10] and earned his AB in economics from Princeton University in 1968 after completing a senior thesis titled "Fiscal and Monetary Stabilization Policies in a Model of Cyclical Growth".

[20] In 1977, Taylor and Edmund Phelps, simultaneously with Stanley Fischer, showed that monetary policy is useful for stabilizing the economy if prices or wages are sticky, even when all workers and firms have rational expectations.

[24] Taylor then developed the staggered contract model of overlapping wage and price setting, which became one of the building blocks of the New Keynesian macroeconomics that rebuilt much of the traditional macromodel on rational expectations microfoundations.

Particularly, he focuses on the Federal Reserve which, under Alan Greenspan, a personal friend of Taylor, created "monetary excesses" in which interest rates were kept too low for too long, which then directly led to the housing boom in his opinion.

[35] He wrote that, "government actions and interventions, not any inherent failure or instability of the private economy, caused, prolonged, and worsen the crisis.

In November 2008, writing for The Wall Street Journal opinion section, he recommended four measures to fight the economic downturn: (a) permanently keeping all income tax rates the same, (b) permanently creating a worker's tax credit equal to 6.2 percent of wages up to $8,000, (c) incorporating "automatic stabilizers" as part of overall fiscal plans, and (d) enacting a short-term stimulus plan that also meets long-term objectives against waste and inefficiency.

[40] In a June 2011 interview on Bloomberg Television, Taylor stressed the importance of long term fiscal reform that sets the U.S. federal budget on a path towards being balanced.