Simple and Robust Rules for Monetary Policy
In: Handbook of Monetary Economics
AbstractThis paper focuses on simple normative rules for monetary policy that central banks can use to guide their interest rate decisions. Such rules were first derived from research on empirical monetary models with rational expectations and sticky prices built in the 1970s and 1980s. During the past two decades substantial progress has been made in establishing that such rules are robust. They perform well with a variety of newer and more rigorous models and policy evaluation methods. Simple rules are also frequently more robust than fully optimal rules. Important progress has also been made in understanding how to adjust simple rules to deal with measurement error and expectations. Moreover, historical experience has shown that simple rules can work well in the real world in that macroeconomic performance has been better when central bank decisions were described by such rules. The recent financial crisis has not changed these conclusions, but it has stimulated important research on how policy rules should deal with asset bubbles and the zero bound on interest rates. Going forward, the crisis has drawn attention to the importance of research on international monetary issues and on the implications of discretionary deviations from policy rules.
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Monetary Policy; Monetary Theory; New Monetarism;
Other versions of this item:
- John B. Taylor & John C. Williams, 2010. "Simple and robust rules for monetary policy," Working Paper Series 2010-10, Federal Reserve Bank of San Francisco.
- John B. Taylor & John C. Williams, 2010. "Simple and Robust Rules for Monetary Policy," NBER Working Papers 15908, National Bureau of Economic Research, Inc.
- E0 - Macroeconomics and Monetary Economics - - General
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Janet Yellen Gives First Speech On Monetary Policy As Fed Chair
by Matthew Boesler in Business Insider on 2014-04-16 16:25:00
- Yellen: Monetary Policy and the Economic Recovery
by Mark Thoma in Economist's View on 2014-04-16 10:08:01
- Should Congress legislate so that the Fed is forced to follow policy rules?
by Tony Yates in longandvariable on 2014-07-08 16:54:07
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