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

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  • John B. Taylor

    (Stanford Institute for Economic Policy Research)

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 paper 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," Discussion Papers 11-019, Stanford Institute for Economic Policy Research.
  • Handle: RePEc:sip:dpaper:11-019
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