How Elastic and Predictable Money Should Be: Flexible Monetary Policy Rules from the Great Moderation to the New Normal Times (1993-2023)

Donato Masciandaro ()

No 23196, BAFFI CAREFIN Working Papers from BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy

Abstract: The never ending debate on the optimal money elasticity and predictability, coupled with the recent wishes of the major central banks to normalize monetary policy, as well as to revise their best practices, motivate this paper. Its aim is to offer a review of the evolution of the modern concept of flexible monetary policy rules, from the seminal contribute of Taylor (1993) to nowadays. Four subsequent steps are implemented: after an excursus on the traditional rules versus discretion debate, the origin of the flexible rules is described, and then its evolution; finally, the opportunity to consider as a promising research perspective the role of the central bankers’ heterogeneity – in terms of personal preferences, including the behavioural biases – is highlighted. The more it is likely that psychology matters, the more a new motivation arises for a central bank to adopt a flexible rule.

Keywords: monetary policy; flexible rules; central bank governance; central banker conservatism; behavioural economics; Sweden; New Zealand (search for similar items in EconPapers)
JEL-codes: E50 E52 E58 (search for similar items in EconPapers)
Pages: 20
Date: 2023
New Economics Papers: this item is included in nep-cba, nep-mon and nep-pay
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