Some Political Economy of Monetary Rules
Independent Review 23(1) 2016: 443-464
33 Pages Posted: 8 Oct 2015 Last revised: 2 Dec 2016
Date Written: December 1, 2016
This paper compares various proposals for monetary policy rules according to the standard of political economy. It first presents an argument for why rules-based monetary policy is preferable to discretionary policy. Next it discusses at a general level two kinds of rules: those that can be implemented with minimal changes to current monetary institutions, that is, central banking, and those that would require significant institutional changes to implement. The paper closes by calling for a re-orientation of modern macroeconomic and monetary discourse away from economic control and towards the rule of law, whereby the politically inexpediency of the latter proposals becomes an asset.
Keywords: Bennett McCallum, central banking, free banking, John Taylor, Milton Friedman, monetary policy, monetary theory, nominal income targeting, rule of law, rules vs. discretion
JEL Classification: A2, E42, E5, P16
Suggested Citation: Suggested Citation