Monetary Policy Strategies

Robert Flood () and Peter Isard

No 2770, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The paper considers the merits of rules and discretion for monetary policy when the structure of the macroeconomic model and the probability distributions of disturbances are not well defined. It is argued that when it is costly to delay policy reactions to seldom-experienced shocks until formal algorithmic learning has been accomplished, and when time consistency problems are significant, a mixed strategy that combines a simple verifiable rule with discretion is attractive. The paper also discusses mechanisms for mitigating credibility problems and emphasizes that arguments against various types of simple rules lost their force under a mixed strategy.

Date: 1988-11
Note: ITI IFM
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Citations: View citations in EconPapers (34)

Published as IMF Staff papers, Vol. 36, no. 3 (1989): 612-632.
Published as "Monetary Policy Strategies - A Correction: Reply", IMF, Vol. 37, no. 2 (1990): 446-448.
Published as Robert P. Flood & Peter Isard, 1989. "Monetary Policy Strategies," Staff Papers - International Monetary Fund, vol 36(3).

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