Journal Article

The case for rules in the conduct of monetary policy: a concrete example

Abstract: A policy rule can be activist; the distinction between rules and discretion depends on the stage at which optimization calculations enter the policy process. Here a specific monetary rule is proposed, one that sets the monetary base each quarter in a manner designed to keep nominal aggregate demand growing smoothly at a noninflationary rate. Simulations with a simple estimated model suggest that the proposed rule would have performed well over the period 1954-85, despite financial innovations and regulatory change.

Keywords: Monetary policy; Inflation (Finance); Monetary theory;

Bibliographic Information

Provider: Federal Reserve Bank of Richmond

Part of Series: Economic Review

Publication Date: 1987

Volume: 73

Issue: Sep

Pages: 10-18