This dissertation contains three essays regarding the Taylor curve. Taylor (1979) posited a permanent tradeoff between the volatility of output gap and the volatility of inflation. The first essay explores the empirical relationship between the volatility of inflation and the output gap. The last two essays implement optimal control techniques to construct Taylor curves for the United States and countries in the European Union. In the first essay, The Taylor curve necessitates that the correlation between the volatilities of inflation and the output gap be non-positive for optimal monetary policy. In essay one, the correlation between the second moments of inflation and the output gap are investigated using time-varying correlations, variance impulse response functions, and a time-varying parameter model. We find that macroeconomic performance is substantially better during time periods in which the correlation is negative as the Taylor curve suggests. In the second essay, we use data from 1875 examine the efficiency of U.S. monetary policy by measuring the orthogonal distance between the observed volatilities of the output gap and inflation from the Taylor curve. In addition, we identify time periods in which the variability of the U.S. economy changed by observing shifts in this efficiency frontier. We find that since 1940 the Taylor curve has trended towards the origin. Moreover, the cost of stabilizing inflation in terms of output gap volatility has steadily decreased through time. The Taylor curve also necessitates that the correlation between the volatilities of inflation and the output gap be non-positive for optimal monetary policy. In essay three, the efficiency a historical analysis of the European Monetary System and the monetary policy of European Central Bank (ECB) is conducted. Using data from European Union countries I measure the orthogonal distance between the observed volatilities of the output gap and inflation from their optimal levels. In addition, I identify time periods in which the variability of the E.U. economies changed by observing shifts in this efficiency frontier. I find in most EU countries, the Taylor curve has shifted towards the origin. In addition, stage II of the Maastricht Treaty was more instrumental in macroeconomic stabilization for EU countries than the beginning of ECB monetary policy. Policy by the ECB appears to be more conducive for France than any other countries in our sample.