Making Discretion in Monetary Policy More Rule-Like
Frederic Mishkin ()
No 24135, NBER Working Papers from National Bureau of Economic Research, Inc
This paper argues that the rules versus discretion debate has been miscast because a central bank does not have to choose only between adopting a policy rule versus pure discretion, both of which have serious shortcomings. Rather it can choose a constrained discretionary regime that has rule-like attributes. Monetary policy discretion can be made more rule-like, by 1) adopting a nominal anchor such as an inflation target, and 2) communication of a monetary policy reaction process, especially through data-based forward guidance, in which the monetary policy authorities describe how the future policy path will change as economic circumstances change.
JEL-codes: E5 E52 E58 (search for similar items in EconPapers)
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