 Day Two Keynote Address: Goals and Rules in Central Bank DesignInternational Journal of Central Banking, 2015, vol. 11, issue 4, 295-352 Abstract: Beginning with the Reserve Bank of New Zealand Act of 1989, central banking reforms have focused on assigning clear goals for which monetary policy authorities can be held accountable. Inflation-targeting regimes provide examples of such goal-based policy frameworks. An alternative approach relies on a rule-based framework in which the policy authorities are judged on whether they set their instrument in a manner consistent with a legislated rule. I consider the performance of goal-based and rule-based frameworks. I first show analytically that both goal-based and rule-based systems balance a trade-off between reducing sources of policy distortions and preserving policy flexibility. Then, using an estimated DSGE model, I find the optimal weights to place on goal-based and rule-based performance measures. When the rule is similar to that proposed recently in U.S. H.R. 5108, I find that the optimal weight to assign to the rule-based performance measure is zero. However, when the rule is based on the output efficiency gap, it is generally optimal to make deviations from the rule a part of the central bank’s performance measure. JEL-codes: E52 E61 (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2015:q:4:a:10 Access Statistics for this article International Journal of Central Banking is currently edited by Loretta J. Mester More articles in International Journal of Central Banking from International Journal of Central Banking |
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