The Case for Rules in the Conduct of Monetary Policy: A Concrete Example

9 Pages Posted: 27 Oct 2012

See all articles by Bennett T. McCallum

Bennett T. McCallum

Carnegie Mellon University - David A. Tepper School of Business; National Bureau of Economic Research (NBER)

Date Written: 1987

Abstract

A policy rule can be activist; the distinction between rules and discretion depends on the stage at which optimization calculations enter the policy process. Here a specific monetary rule is proposed, one that sets the monetary base each quarter in a manner designed to keep nominal aggregate demand growing smoothly at a noninflationary rate. Simulations with a simple estimated model suggest that the proposed rule would have performed well over the period 1954-85, despite financial innovations and regulatory change.

Suggested Citation

McCallum, Bennett T., The Case for Rules in the Conduct of Monetary Policy: A Concrete Example (1987). FRB Richmond Economic Review, vol. 73, no. 5, September/October 1987, pp. 10-18. Available at SSRN: https://ssrn.com/abstract=2125227

Bennett T. McCallum (Contact Author)

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
412-268-2347 (Phone)
412-268-7357 (Fax)

National Bureau of Economic Research (NBER)

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