Making Discretion in Monetary Policy More Rule-Like

28 Pages Posted: 28 Dec 2017

See all articles by Frederic S. Mishkin

Frederic S. Mishkin

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: December 2017

Abstract

This paper argues that the rules versus discretion debate has been miscast because a central bank does not have to choose only between adopting a policy rule versus pure discretion, both of which have serious shortcomings. Rather it can choose a constrained discretionary regime that has rule-like attributes. Monetary policy discretion can be made more rule-like, by 1) adopting a nominal anchor such as an inflation target, and 2) communication of a monetary policy reaction process, especially through data-based forward guidance, in which the monetary policy authorities describe how the future policy path will change as economic circumstances change.

Suggested Citation

Mishkin, Frederic S., Making Discretion in Monetary Policy More Rule-Like (December 2017). NBER Working Paper No. w24135. Available at SSRN: https://ssrn.com/abstract=3092983

Frederic S. Mishkin (Contact Author)

Columbia Business School - Finance and Economics ( email )

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