Monetarist Rules in the Light of Recent Experience
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.
|Date of creation:||Feb 1984|
|Date of revision:|
|Publication status:||published as McCallum, Bennett T. "Monetarist Rules in the Light of Recent Experience." American Economic Review, Vol. 74, No. 2, (May 1984), pp. 388-391.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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NBER Working Papers
0630, National Bureau of Economic Research, Inc.
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