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Monetarist Rules in the Light of Recent Experience

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  • McCallum, Bennett T

Abstract

Recent experience does not include a "monetarist experiment," as some have argued, but may slightly reinforce preexisting reasons for doubting that the best way of formulating monetarist policy prescriptions is in the form of a constant growth rule for the money stock.A more desirable rule would pertain to the monetary base, which is much more directly under Fed control. While a constant base growth rule might provide good macroeconomic performance, better results should be obtainable from a rule that at regular intervals adjusts the base growth rate upward or downward depending on whether nominal GNP is below or above a target path that specifies constant, non-inflationary growth for that variable. This type of rule is activist, to an extent, but is non-discretionary.The implied absence of policy-making flexibility is desirable for reasons explained in the literature on dynamic inconsistency.
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Suggested Citation

  • McCallum, Bennett T, 1984. "Monetarist Rules in the Light of Recent Experience," American Economic Review, American Economic Association, vol. 74(2), pages 388-391, May.
    • Handle: RePEc:aea:aecrev:v:74:y:1984:i:2:p:388-91
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