The Rules-Discretion Cycle in Monetary and Fiscal Policy
This lecture starts with a review of historical trends in the balance between rules and discretion: first toward more discretionary policies in the 1960s and 1970s; second toward more rules-based policies in the 1980s and 1990s; and third back again toward discretion in recent years. In each of these swings, monetary policy and fiscal policy moved in the same direction. These swings are correlated with economic performance—unemployment, inflation, economic and financial stability, the frequency and depths of recessions, the length and strength of recoveries. The lecture then provides evidence that the correlation is causal with the moves toward more rules-based policies improving economic performance.
Volume (Year): 24 (2011)
Issue (Month): 2 (Autumn)
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- John P. Judd & Bharat Trehan, 1995. "Has the Fed gotten tougher on inflation?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue mar31.
- Taylor, John B. & Williams, John C., 2010.
"Simple and Robust Rules for Monetary Policy,"
Handbook of Monetary Economics,in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 15, pages 829-859
- John B. Taylor & John C. Williams, 2010. "Simple and Robust Rules for Monetary Policy," NBER Working Papers 15908, National Bureau of Economic Research, Inc.
- 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.