Monetary Rules without Romance

32 Pages Posted: 23 May 2019

See all articles by Bryan Cutsinger

Bryan Cutsinger

Angelo State University - Accounting, Economics and Finance Department; Texas Tech University - Free Market Institute

Date Written: April 20, 2019


How much independence should the monetary authority retain in a rules-based regime? The conventional wisdom holds that while the political system - particularly in a democratic society - should determine the overarching goal of monetary policy, the central bank should remain free to select whichever "levers" it deems most appropriate for achieving the goal. This paper evaluates whether instrument independence is consistent with the goals of a rules-based regime by examining the monetary and macroeconomic effects of allowing the monetary authority discretion over the choice of control procedures when its objectives are at odds with the public interest. I argue that while a benevolent monetary authority would always select the most "efficient" policy instrument, i.e., the instrument consistent with achieving its stated objective, an opportunistic one may intentionally choose instruments that obscure its objectives, thereby undermining the purpose of monetary rules.

Keywords: Central Bank Independence, Monetary Rules, Policy Instruments, Political Economy

JEL Classification: E41, E51, E61

Suggested Citation

Cutsinger, Bryan, Monetary Rules without Romance (April 20, 2019). Available at SSRN: or

Bryan Cutsinger (Contact Author)

Angelo State University - Accounting, Economics and Finance Department ( email )

San Angelo, TX 76909
United States

Texas Tech University - Free Market Institute

Box 45059
Lubbock, TX 79409-5059
United States

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