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Simple Rules, Discretion and Monetary Policy

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  • Robert Flood
  • Peter Isard

Abstract

In this paper we explore the possibilities arising under a policy in which a partially state contingent money-supply rule is mixed with discretion. In addition to demonstrating that such mixed strategies can dominate both complete discretion and rigid adherence to the partially state contingent rule, we investigate the appropriate setting of parameters in a partially state contingent policy when it is acknowledged that the rule will not be followed on all occasions--i.e., that sometimes the monetary authority will resort to discretion.

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File URL: http://www.nber.org/papers/w2934.pdf
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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2934.

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Date of creation: Apr 1989
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Handle: RePEc:nbr:nberwo:2934

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References

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  1. Flood, Robert P & Garber, Peter M, 1980. "An Economic Theory of Monetary Reform," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 24-58, February.
  2. Matthew B. Canzoneri, 1983. "Monetary policy games and the role of private information," International Finance Discussion Papers 249, Board of Governors of the Federal Reserve System (U.S.).
  3. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  4. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
  5. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
  6. Bennett T. McCallum, 1987. "The case for rules in the conduct of monetary policy: a concrete example," Economic Review, Federal Reserve Bank of Richmond, issue Sep, pages 10-18.
  7. Stanley Fischer, 1988. "Rules Versus Discretion in Monetary Policy," NBER Working Papers 2518, National Bureau of Economic Research, Inc.
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Cited by:
  1. Paolo Manasse, 2007. "Deficit Limits and Fiscal Rules for Dummies," IMF Staff Papers, Palgrave Macmillan, vol. 54(3), pages 455-473, July.
  2. Hugh Rockoff & Michael D. Bordo, 1996. "The Gold Standard as a "Good Housekeeping Seal of Approval"," Departmental Working Papers 199528, Rutgers University, Department of Economics.
  3. Michael D. Bordo & Anna J. Schwartz, 1997. "The Specie Standard as a Contingent Rule: Some Evidence for Core and Peripheral Countries, 1880-1990," NBER Working Papers 4860, National Bureau of Economic Research, Inc.

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