Rules rather than Discretion or Automaticity: Monetary System Performance in Times of Economic Distress

31 Pages Posted: 26 Mar 2018 Last revised: 1 Apr 2018

See all articles by Sinan Krueckeberg

Sinan Krueckeberg

University of the German Federal Armed Forces - Helmut Schmidt Universität; HSBA Hamburg School of Business Administration

Date Written: March 27, 2018

Abstract

This paper compares monetary system performance in terms of price level stability for the ideal types constrained discretion, rules and automaticity. A proprietary model for annual US gold output dependent on macro-economic factors is developed, to model automaticity under a gold standard with 100% reserve requirement. Within a United States model economy, back-tests for eight episodes of economic distress show that constrained discretion performs worst both in terms of time inconsistency and inflationary bias, while the rule-based Friedman proposals outperform. This challenges current consensus favoring discretionary central bank intervention.

Keywords: Monetary Policy, Price Level Stability, Rules vs. Discretion, Constrained Discretion, Friedman Rule, Gold Standard, Inflationary Bias, Time Inconsistency

JEL Classification: C54, E52, E58, E65, E66

Suggested Citation

Krueckeberg, Sinan, Rules rather than Discretion or Automaticity: Monetary System Performance in Times of Economic Distress (March 27, 2018). Available at SSRN: https://ssrn.com/abstract=3146903 or http://dx.doi.org/10.2139/ssrn.3146903

Sinan Krueckeberg (Contact Author)

University of the German Federal Armed Forces - Helmut Schmidt Universität ( email )

Hamburg
Germany

HOME PAGE: http://www.krueckeberg.us

HSBA Hamburg School of Business Administration ( email )

Germany

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