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Rules Versus Discretion in Monetary Policy

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  • Stanley Fischer

Abstract

This paper examines the case for rules rather than discretion in the conduct of monetary policy, from both historical and analytic perspectives. The paper starts with the rules of the game under the gold standard. These rules were ill-defined and not adhered to; active discretionary policy was pursued to defend the gold standard -- but the gold standard came closer to a regime of rules than the current system. The arguments for rules in general developed by Milton Friedman are described mo appraised; alternative rules including the constant money growth ratio rule, interest rate rules, nominal GNP targeting, and price level rules are analyzed. Until 1977 the general argument for monetary rules suffered from the apparent dominance of discretion: if a particular monetary policy was desirable, it could always 09 adopted by discretion. The introduction of the notion of dynamic inconsistency made a stronger case for rules, the final sections analyze tine case for rules rather than discretion in the light of recent game theoretic approaches to policy analysis.

Suggested Citation

  • Stanley Fischer, 1988. "Rules Versus Discretion in Monetary Policy," NBER Working Papers 2518, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:2518
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    1. repec:bla:ecinqu:v:55:y:2017:i:4:p:1813-1832 is not listed on IDEAS
    2. Francisco Rosende, 1997. "La Autonomía del Banco Central una Vez Más," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 34(101), pages 3-26.
    3. Robert Rennhack, 1991. "La Conducción de la Política Monetaria," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 28(83), pages 11-20.
    4. Adrian Chadi & Matthias Krapf, 2017. "The Protestant Fiscal Ethic: Religious Confession And Euro Skepticism In Germany," Economic Inquiry, Western Economic Association International, vol. 55(4), pages 1813-1832, October.
    5. Robert Flood & Peter Isard, 1989. "Simple Rules, Discretion and Monetary Policy," NBER Working Papers 2934, National Bureau of Economic Research, Inc.
    6. Lakomski-Laguerre, Odile & Desmedt, Ludovic, 2015. "L’alternative monétaire Bitcoin : une perspective institutionnaliste," Revue de la Régulation - Capitalisme, institutions, pouvoirs, Association Recherche et Régulation, vol. 18.

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