The Taylor Rule and Evaluation of U.S. Monetary Policy

Lloyd B. Thomas

Chapter Chapter 11 in The Financial Crisis and Federal Reserve Policy, 2011, pp 193-212 from Palgrave Macmillan

Abstract: Abstract Among economists, a long-standing debate involves the “rules versus discretion” issue in monetary policy. A monetary policy rule is an arrangement in which the central bank announces in advance a specific objective (or objectives) and commits itself to using its policy instruments rigorously to achieve the explicit objective(s). For example, if a central bank employs an explicit 2 percent inflation targeting rule, it will raise interest rates when actual or expected inflation exceeds 2 percent, and reduce interest rates when inflation or expected inflation falls below 2 percent. This type of monetary policy regime contrasts with a system of discretionary monetary policy, in which the central bank is given maximum latitude to employ its judgment in conducting policy.

Keywords: Monetary Policy; Federal Reserve; Real Interest Rate; Inflation Target; Taylor Rule (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-11807-2_11

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DOI: 10.1057/9780230118072_11

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