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The Rules-Discretion Cycle in Monetary and Fiscal Policy

John Taylor ()

Finnish Economic Papers, 2011, vol. 24, issue 2, 78-86

Abstract: This lecture starts with a review of historical trends in the balance between rules and discretion: first toward more discretionary policies in the 1960s and 1970s; second toward more rules-based policies in the 1980s and 1990s; and third back again toward discretion in recent years. In each of these swings, monetary policy and fiscal policy moved in the same direction. These swings are correlated with economic performance—unemployment, inflation, economic and financial stability, the frequency and depths of recessions, the length and strength of recoveries. The lecture then provides evidence that the correlation is causal with the moves toward more rules-based policies improving economic performance.

JEL-codes: E60 N10 (search for similar items in EconPapers)
Date: 2011
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Handle: RePEc:fep:journl:v:24:y:2011:i:2:p:78-86