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Monetary Policy Rules Work and Discretion Doesn’t: A Tale of Two Eras

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  • JOHN B. TAYLOR

Abstract

This lecture examines monetary policy during the past three decades. It documents two contrasting eras: first a Rules‐Based Era from 1985 to 2003 and second an Ad Hoc Era from 2003 to the present. During the Rules‐Based Era, monetary policy, in broad terms, followed a predictable systemic approach, and economic performance was generally good. During the Ad Hoc Era, monetary policy is best described as a “discretion of authorities” approach, and economic performance was decidedly poor. By considering alternative explanations of this policy–performance correlation and examining corroborating evidence, the lecture concludes that rules‐based policies have clear advantages over discretion.

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  • John B. Taylor, 2012. "Monetary Policy Rules Work and Discretion Doesn’t: A Tale of Two Eras," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(6), pages 1017-1032, September.
    • Handle: RePEc:wly:jmoncb:v:44:y:2012:i:6:p:1017-1032
    DOI: 10.1111/j.1538-4616.2012.00521.x
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