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The Present and Future of Monetary Policy Rules

Listed author(s):
  • McCallum, Bennett T

To consider the prospects, looking 20-30 years into the future, for monetary policymaking in accordance with policy rules, one must evaluate their present importance. That requires some definition of what constitutes rule-based monetary policy in practice, since no actual central bank will ever be literally bound by any simple formula (or any strict optimal control scheme). Consideration of the rules-versus-discretion literature, plus more recent analysis by Woodford (1999), indicates that rule-based policy is conducted to satisfy relationships specified from a timeless perspective.' Given this conception, it seems reasonably clear that today's prominent regimes (e.g., inflation targeting) do largely represent rule-based policymaking. Whether these will prevail into the future will depend in part on political trends, but their fundamental soundness gives room for hope. Regarding the effects of a gradually diminishing role of money, it would appear that the feasibility and attractiveness of rule-based policymaking will not be seriously impaired so long as a tangible medium of exchange has some importance, even if small. In the complete absence of monetary transactions, there would be no monetary policy of any type, rule-based or discretionary. But it seems highly unlikely that money will disappear in the foreseeable future.

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Article provided by Wiley Blackwell in its journal International Finance.

Volume (Year): 3 (2000)
Issue (Month): 2 (July)
Pages: 273-286

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Handle: RePEc:bla:intfin:v:3:y:2000:i:2:p:273-86
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  2. Robert E. Lucas, Jr., 1980. "Rules, Discretion, and the Role of the Economic Advisor," NBER Chapters,in: Rational Expectations and Economic Policy, pages 199-210 National Bureau of Economic Research, Inc.
  3. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
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