Enhancing Resilience with Monetary Policy Rules

Abstract: The Fed’s next policy strategy review should aim to discipline discretion, help the FOMC be more systematic. This can be achieved by using simple policy rules to explain policy and by providing to the public pertinent information in real time. Since notable deviations of policy from simple rules with desirable robustness characteristics would warrant explanation, public disclosure of deviations would constrain discretion. Study of two simple rules that have been presented in the Fed’s Bluebook/Tealbook starting in 2004, but not disclosed to the public in real time, illustrates how this approach would have helped the Fed during the recovery from the pandemic.

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