Simple and Robust Rules for Monetary Policy

John Taylor and John Williams

No 15908, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper focuses on simple rules for monetary policy which central banks have used in various ways to guide their interest rate decisions. Such rules, which can be evaluated using simulation and optimization techniques, were first derived from research on empirical monetary models with rational expectations and sticky prices built in the 1970s and 1980s. During the past two decades substantial progress has been made in establishing that such rules are robust. They perform well with a variety of newer and more rigorous models and policy evaluation methods. Simple rules are also frequently more robust than fully optimal rules. Important progress has also been made in understanding how to adjust simple rules to deal with measurement error and expectations. Moreover, historical experience has shown that simple rules can work well in the real world in that macroeconomic performance has been better when central bank decisions were described by such rules. The recent financial crisis has not changed these conclusions, but it has stimulated important research on how policy rules should deal with asset bubbles and the zero bound on interest rates. Going forward the crisis has drawn attention to the importance of research on international monetary issues and on the implications of discretionary deviations from policy rules.

JEL-codes: E5 (search for similar items in EconPapers)
Date: 2010-04
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (154)

Published as “Simple and Robust Rules for Monetary Policy,” with John C. Williams, Benjamin Friedman and Michael Woodford (Eds.), Handbook of Monetary Economics, 3, Elsevier, 2011, pp 829-859

Downloads: (external link)
http://www.nber.org/papers/w15908.pdf (application/pdf)

Related works:
Chapter: Simple and Robust Rules for Monetary Policy (2010)
Working Paper: Simple and robust rules for monetary policy (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:15908

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w15908

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().