(Hawks versus Doves) versus (Rules versus Discretion)
37 Pages Posted: 17 Mar 2020 Last revised: 9 Jun 2021
Date Written: February 17, 2020
Abstract
The conduct of monetary policy is often characterized by either “hawks versus doves” or “rules versus discretion”. Looking at the 1965 to 2015 period, we show that better economic performance occurs when members of the Federal Open Market Committee are more concerned about inflation than unemployment (hawkish) and/or the Fed closely follows a policy rule (rules-based). Moreover, the economy performs better in periods of either strong hawkish or dovish majorities than when majorities are weak. While it is more important to follow a policy rule than to have a hawkish Committee, it is better to have a policy rule with a hawkish than with a dovish Committee.
Keywords: Monetary Policy, Federal Reserve, Policy Preferences, Rules, Discretion
JEL Classification: E52, E58
Suggested Citation: Suggested Citation