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The case for rules in the conduct of monetary policy: a concrete example

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  • Bennett T. McCallum

Abstract

A policy rule can be activist; the distinction between rules and discretion depends on the stage at which optimization calculations enter the policy process. Here a specific monetary rule is proposed, one that sets the monetary base each quarter in a manner designed to keep nominal aggregate demand growing smoothly at a noninflationary rate. Simulations with a simple estimated model suggest that the proposed rule would have performed well over the period 1954-85, despite financial innovations and regulatory change.

Suggested Citation

  • Bennett T. McCallum, 1987. "The case for rules in the conduct of monetary policy: a concrete example," Economic Review, Federal Reserve Bank of Richmond, vol. 73(Sep), pages 10-18.
  • Handle: RePEc:fip:fedrer:y:1987:i:sep:p:10-18:n:v.73no.5
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    4. Robert J. Barro & David B. Gordon, 2019. "A Positive Theory of Monetary Policy in a Natural Rate Model," Credit and Capital Markets, Credit and Capital Markets, vol. 52(4), pages 505-525.
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